Predicting Stock Returns with Financial Ratios; An Exploration in Recent Researches

What is important for the users of financial information is the output of the financial system, not the accounting principles and practices, because it helps them achieve their goals. The main objective of investors is maximizing their wealth. Wealth depends on two factors included risk and return. That's why the prediction of these factors is crucial to the shareholders. Therefore, they use any tool that can help them reach these goals. One of these tools with the increasing usage in recent years is financial ratio. Financial ratios are one of the most common methods to analyze financial information. These ratios are summary of financial statements and their application and interpretation is easier. Hence the aim of this article is to review the studies on the role of financial ratios to predict stock returns as one of the main objectives of the shareholders. In this study that refers to the domestic research, the results indicate that profitability ratios have higher share to predict stock returns compared with other groups of financial ratios. Findings show that ROA and ROE have the most ability to explain stock returns changes