Predicting Earnings Growth Using Earnings to Price Ratios for Companies Quoted at the Nairobi Stock Exchange

Abstract

This study was conducted to determine whether earnings growth can be predicted by Earnings to Price ratios of the companies listed at the Nairobi Stock. Similar studies have been conducted elsewhere in other stock markets in the world, but no such study has been carried out in the NSE. Hence there was need for an empirical study to find out if NSE exhibits same results as in USA and Australia. The EIP ratio's for companies for companies whose financial year end on December 31sr were computed and assigned in to quintiles. The tests conducted were based on the quintiles just like the study conducted in USA and Australia. The findings showed that EIP ratios can be used to predict earnings changes. This indicates that investors can be used E/P ratio to establish the potential of growth of their investment.