Discussion On Quantitative Selection Of Stocks Based On Financial Ratios

The thesis reviewed the research achievements on ROE in both Chinese and English articles. It summarized the opinions on how the financial ratios affect the companies’ performances and stock prices.The thesis used DuPont Method and broke ROE into three parts, besides it found better ratios than the original parts. It suggested that Assets Turnover was relatively stable while the rise in Financial Leverage would benefit the next year’s performance. So first this thesis chose stocks with higher equity multipliers, and from which it chose those with higher Operating Profit Margin, the chosen stocks pool had higher average increase in stock prices.This conclusion was proved to be true in all the 2653 A share stocks as at March 20, 2015. And it was also effective in all the stocks in healthcare sector. But when the samples were limited to chemical pharmaceutical companies, a subsector of healthcare stocks, the conclusion was not so perfect as above. Still the years with a positive result were more than the years with a negative result through the past 12 years.