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1. Objective
The objective of this analysis is to establish a model with the capability to find the dependency of breakup value of ordinary share on current ratio.

2. Introduction
There has been a general perception among investors especially small investors in Pakistan that the firms which have the stronger ability to discharge its current /short term obligations (debts and payables) falling due within in next twelve months is more reliable for investment and financially sound in short-run and therefore the breakup value of ordinary share is somewhat dependent on current ratio maintained by firm. To go further in analysis it is worth mentioning what are our variables for this analysis. 2.1 Current Ratio One of the widely used methods to examine the short term liquidity and financial health of the firm is its current ratio which is given by the following formula

Investopedia explains this ratio as under The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they become due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.1 2.2 The Breakup value of ordinary share The breakup value is explained by Professor David L. Scott as The market value of all the individual parts of a firm if the firm were to be broken up and the individual parts operated independently. If the breakup value of a firm exceeds the market value at which its stock trades, the firm may be managed and operated inefficiently. In such a case, stockholder holdings would increase in value if parts of the firm were divested. Many takeovers originate when raiders spot firms with breakup values that exceed the prices at which those firms' stocks are traded. (Scott, 2003)

http://www.investopedia.com/terms/c/currentratio.asp#ixzz1UaUveU2G

2 2.3 Methodolgy To achieve the objective simple regression analysis using SPSS2 has been performed on two scale variables. Current Ratio has been assumed as independent variable and Breakup Value of ordinary shares as dependent variable. The secondary data has been collected from Statistics and DWH Department of State Bank of Pakistans report on Balance sheet Analysis Of Joint Stock Listed Companies (2004-2009) listed on Karachi stock exchange. Six different companies from different sectors of industries have been taken and their respective current ratios and breakup value of ordinary share between from 2004 to 2009 has been used to perform the regression.

3. Analysis

The performance of analysis has produced the following results which has been interpreted as follow
Variables Entered/Removed (b) Variables Entered Variables Removed .

lncr(a) a All requested variables entered. b Dependent Variable: lnsp

Model 1

Method Enter

This table shows that only one variable which is lncr is used for regression which is our independent hence it is a simple regression and the method used is enter.
Model Summary (b) Adjusted R Square .154 Std. Error of the Estimate .92731

.422(a) .178 a Predictors: (Constant), lncr b Dependent Variable: lnsp

Model 1

R Square

This table is the most important table that explains the summary of our regression model. The First column of Model tells us that one model has been use for this simple regression. The second column denoted by R show us the correlation between the observed values and predicted values of dependent variable is 42.2%.This explains that there is moderate positive correlation between observed values of breakup values of ordinary share and predicted values of breakup value of ordinary share. The R Square is the coefficient of determination which furnishes the information about how accurate the prediction using this model can be. The output value here is .178 which show that independent variable in the model can predict only 17.8 % of the values in dependent variable unconditionally. Adjusted R square

Statistical Package for the Social Sciences

3 tells conditional accuracy about model fitness provided the model is adjusted in this case 15.4 % of values can be predicted more accurately if more conditions are imposed.

ANOVA(b) Sum of Squares Regression Residual Total a Predictors: (Constant), lncr b Dependent Variable: lnsp 6.328 29.237 35.565

Model 1

df 1 34 35

Mean Square 6.328 .860

F 7.359

Sig. .010(a)

The above table shows one-way ANOVA. Regression row shows the variability in the model due to known reason whereas residual row give the variability due to unknown reason. p-value which is .010 less than 0.05 which show that mean of current ratio is not equal to mean of breakup value of share on the basis of rejection of null hypothesis.
Coefficients(a) Unstandardized Coefficients Model 1 B (Constant) lncr a Dependent Variable: lnsp 8.296 -.713 Std. Error 1.368 .263 -.422 Standardized Coefficients Beta

t B 6.063 -2.713

Sig. Std. Error .000 .010

The table above provides important information about constructing least square equation. We have been given as output the regression constant as 8.0296 and value of coefficient as -.713 along with their respective significance. This enables us to construct a least square equation as Ln of Breakup value of share=8.296 -0.713 (ln of current ratio) Since p-value of lncr is 0.01 which is less than 0.05 therefore given a null hypothesis is rejected we can conclude that regression coefficient is not equal to zero. The standard error shows the allowed amount of error in constant as well as independent variable lncr.

4. Charts
Histogram

Dependent Variable: lnsp

8

Frequency

0 -2 -1 0 1 2 3

Mean =1.04E-16 Std. Dev. =0.986 N =36

Regression Standardized Residual

The histogram is approximately bell-shaped or approximately symmetrical this shows the value of mean and standard deviation of the residual in the model to be about 0 and 1 respectively indicating a good fit model. N show that there were 36 observation in the analysis.

Normal P-P Plot of Regression Standardized Residual

Dependent Variable: lnsp

1.0

Expected Cum Prob

0.8

0.6

0.4

0.2

0.0 0.0 0.2 0.4 0.6 0.8 1.0

Observed Cum Prob

This normal probability plot of standardized residual shows the regression line which touch many points on the fitted regression line which shows an approximately good fit.

Conclusion:
The fitted model is approximately accurate and we can conclude that the breakup value of share is approximately significantly dependent upon current ratio moreover breakup value of share depend upon the change in current ratio such that 17.8 % of predicted values of breakup value of shares are exactly the same as actual.

References
Scott, D. L. (2003). Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor. Houghton Mifflin Company.