Profitability analysis of selected multinational companies listed on London stock exchange by principal component method

Abstract

Investment decisions include higher level of risk due to the uncertainty nature in the business environment. Thus, investors take investment decisions more wisely by considering several internal and external factors. As a result, this study is mainly focusing on the profitable industries in a developed country like United Kingdom and it has considered analysing for the top 10 companies listed in the share market. Further, it investigates how changes in the financial performance of those selected companies influencing the profit of first 10 best. Thus, Multinational National Companies (MNC) in the UK during the period of 2005 to 2019 was selected as the sample of this study. Accordingly, eight performance indicators were used to carry out this study as current ratio, Quick ratio, Debt to equity ratio, Return on Asset ratio, earning per share ratio, Return on Investment ratio, Return on Equity ratio and number of employees. Moreover, secondary data was collected through annual financial statements of the organizations. In this research Principal Component Analysis (PCA) tools have been used to analysis and discuss the profitability of performance indicators of the selected MNC. As per the analysed data, principal component analysis was run to come up with variables from each component. However, all the variables involved in this analysis are not recorded within the expected range as some showed higher level of deviations. Accordingly, this study demonstrates the position of the MNCs in the UK to different stakeholders who are interested in the financial performance of each company by giving them a quick analyse to show the performance of each company. It also assists those who do financial reporting on picking the ratios which matter in reflecting the performance of their companies. The use of PCA gives unbiased ratios that are most significant to assess the performance financially. As a result, this study will be beneficial for the future investors in financial market to select the best MNC to make them invest decisions based on the financial performances of the organizations. Moreover, this study suggests future research to use other alternative multivariate methods to reduce the complexity of the obtained model.