PRINCIPAL COMPONENT ANALYSIS

The relationship of the current ratio and solvency ratio to the investment decision index is
negative. It means that investors would typically not look on the short term returns. They tend to look
on greater risk with a higher return. Liquidity ratio is not sufficient to analyze the industries
performance. These focus on the amount of current assets rather than the quality of the assets.

The financial leverage ratios namely the following: debt ratio, debt equity ratio, interest
coverage, and asset to equity ratio have shown positive results when correlated to the Investment
Decision Index. It tells that the higher the results are, the more likely investors will invest into the certain
industry. Investors take concern with the financial leverage of a certain company to know the company’s
debt structure whether if it is worth investing or not. The interest coverage, garnering one of the
highest results, indicates that investors consider the amount of debt or borrowings made by certain
companies and the interest rate that such borrowings have taken. The positive results of the debt ratio,
debt equity ratio and asset to equity ratio show that investors look at the company’s capital
composition. Thus, giving light that aside from profitability goals, investors consider long term stability
of their investments by looking at the company’s risks, long term obligations, and capital structure.

Investors would is interested in looking to the profitability ratio. As seen in the data above, there
is a positive relationship between the gross profit margin, net profit margin, return on assets and return
on equity. The investors are more interested on the profitability as much as the firm does. Profitability
measures and shows a company`s overall efficiency and performance. These ratios also show how the
company can change peso into profits into different stages of measurement. Usually, when a firm has
investors; they tend to show them the profitability to the equity owners. If these ratios will show higher
amount, the better the performance is.

The price earnings ratio is the only profitability ratio which has a negative relationship to the
investment decision index. Price earnings ratio is just a simple tool in assessing a company value. These
earnings are sometimes manipulated by the management to meet earnings expectation.