Effect of Economic Value Added and Profitability Ratio to the Stock Return of Manufacturing Companies on the Indonesia Stock Exchange

Oct 13, 2025 by talynt.org 8 views

Effect of Economic Value Added and Profitability Ratio to the Stock Return of Manufacturing Companies on the Indonesia Stock Exchange

In recent years, the financial landscape has undergone significant changes, with the emergence of new methods for assessing company performance. One such method is Economic Value Added (EVA), which aims to measure the added value generated by a company by considering the cost of capital. This approach differs from traditional measurement methods, which often fail to account for the cost of capital. Meanwhile, investors often rely on traditional financial ratios, such as Return on Assets (ROA), Return on Equity (ROE), and Earning Per Share (EPS), to evaluate the level of stock returns. This study aims to identify how EVA and the profitability ratio of ROA, ROE, and EPS influence the stock returns in manufacturing companies listed on the Indonesia Stock Exchange.

Background and Significance of the Study

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a significant number of manufacturing companies listed on it. The performance of these companies has a direct impact on the stock returns, which in turn affect the investment decisions of investors. In recent years, the IDX has experienced significant growth, with the number of listed companies increasing steadily. However, the performance of these companies has been inconsistent, with some companies experiencing significant growth while others have struggled to maintain their profitability. This study aims to identify the factors that influence the stock returns of manufacturing companies listed on the IDX, with a focus on EVA and the profitability ratio of ROA, ROE, and EPS.

Methodology

This study focused on manufacturing companies listed on the IDX from 2005 to 2008. The sample used consisted of 20 companies that had consistently issued financial statements and distributed dividends during the period. Data collection was carried out by accessing the documentation of financial statements published on the IDX and then analyzed using multiple linear regression methods through SPSS version 16.0. The study used a quantitative approach, with the aim of identifying the relationship between EVA, profitability ratio, and stock returns.

Results

The results of the study showed that the EVA and profitability ratio of ROA, ROE, and EPS simultaneously could affect stock returns. However, when it was analyzed partially, only ROE showed a significant effect on stock returns. Meanwhile, EVA, ROA, and EPS have no significant effect. The R Square coefficient of the regression results of 0.211 indicates that the variation of the EVA, ROA, ROE, and EPS variables can only explain 21.1% of the stock return variable, while the remaining 78.9% is explained by other variables that are not included in the analysis.

Deeper Analysis of EVA and Profitability

Economic Value Added (EVA) is a relatively new indicator and is sometimes not understood by retail investors, in contrast to traditional ratios that are more familiar. EVA highlighted the importance of profits generated after calculating all costs, including capital costs, thus providing a more realistic picture of the company's performance. Meanwhile, profitability ratios such as ROA, ROE, and EPS become more popular because they are easily calculated and understood, and provide fast indications about the efficiency of companies in utilizing assets and capital.

The focus of this research on the ROE ratio is very relevant because this ratio shows how well the company generates profits from each capital unit invested by shareholders. Given that ROE has a significant effect on stock returns, investors are advised to pay more attention to this ratio in making their investment decisions.

Conclusion

Although EVA as a measure of performance provides additional insights about the added value created by the company, ROE remains the main indicator that has a direct impact on investor sentiments and investment decisions. Therefore, to achieve a more comprehensive understanding of stock returns, investors need to pay attention to both EVA and conventional profitability ratios. Thus, more in-depth and comprehensive analysis of company performance variables can help investors in making more appropriate investment decisions.

Recommendations

Based on the findings of this study, the following recommendations are made:

Investors should pay more attention to the ROE ratio in making their investment decisions.
Companies should focus on improving their ROE ratio by optimizing their capital structure and improving their profitability.
The IDX should consider incorporating EVA as a performance indicator in its listing requirements.
Further research should be conducted to explore the relationship between EVA and stock returns in other industries.

Limitations of the Study

This study has several limitations, including:

The study only focused on manufacturing companies listed on the IDX.
The study only used a sample of 20 companies.
The study only analyzed the relationship between EVA, profitability ratio, and stock returns.

Future Research Directions

This study has several implications for future research, including:

Exploring the relationship between EVA and stock returns in other industries.
Investigating the impact of EVA on investor sentiments and investment decisions.
Developing a more comprehensive model of company performance that incorporates EVA and conventional profitability ratios.

Conclusion

In conclusion, this study has provided insights into the relationship between EVA, profitability ratio, and stock returns in manufacturing companies listed on the IDX. The findings of this study have implications for investors, companies, and the IDX, and highlight the importance of considering EVA and conventional profitability ratios in making investment decisions.
Frequently Asked Questions (FAQs) about the Effect of Economic Value Added and Profitability Ratio to the Stock Return of Manufacturing Companies on the Indonesia Stock Exchange

Q: What is Economic Value Added (EVA) and how does it differ from traditional financial ratios?

A: Economic Value Added (EVA) is a measure of a company's performance that takes into account the cost of capital. It measures the added value generated by a company by considering the cost of capital, which is not taken into account in traditional measurement methods. EVA provides a more realistic picture of a company's performance by highlighting the importance of profits generated after calculating all costs, including capital costs.

Q: What are the traditional financial ratios used to evaluate the level of stock returns?

A: Traditional financial ratios used to evaluate the level of stock returns include Return on Assets (ROA), Return on Equity (ROE), and Earning Per Share (EPS). These ratios provide fast indications about the efficiency of companies in utilizing assets and capital.

Q: What is the significance of the ROE ratio in evaluating the performance of manufacturing companies?

A: The ROE ratio is significant because it shows how well a company generates profits from each capital unit invested by shareholders. Given that ROE has a significant effect on stock returns, investors are advised to pay more attention to this ratio in making their investment decisions.

Q: What are the implications of the study for investors, companies, and the Indonesia Stock Exchange (IDX)?

A: The study has implications for investors, companies, and the IDX. Investors should pay more attention to the ROE ratio in making their investment decisions. Companies should focus on improving their ROE ratio by optimizing their capital structure and improving their profitability. The IDX should consider incorporating EVA as a performance indicator in its listing requirements.

Q: What are the limitations of the study?

A: The study has several limitations, including:

The study only focused on manufacturing companies listed on the IDX.
The study only used a sample of 20 companies.
The study only analyzed the relationship between EVA, profitability ratio, and stock returns.

Q: What are the future research directions based on the study?

A: The study has several implications for future research, including:

Exploring the relationship between EVA and stock returns in other industries.
Investigating the impact of EVA on investor sentiments and investment decisions.
Developing a more comprehensive model of company performance that incorporates EVA and conventional profitability ratios.

Q: What are the key takeaways from the study?

A: The key takeaways from the study are:

EVA and conventional profitability ratios are important indicators of company performance.
ROE is a significant indicator of company performance and has a direct impact on stock returns.
Investors should pay more attention to the ROE ratio in making their investment decisions.
Companies should focus on improving their ROE ratio by optimizing their capital structure and improving their profitability.

Q: What are the practical implications of the study for investors and companies?

A: The practical implications of the study for investors and companies are:

Investors should consider EVA and conventional profitability ratios in making their investment decisions.
Companies should focus on improving their ROE ratio by optimizing their capital structure and improving their profitability.
Companies should consider incorporating EVA as a performance indicator in their reporting.

Q: What are the future implications of the study for the Indonesia Stock Exchange (IDX)?

A: The future implications of the study for the IDX are:

The IDX should consider incorporating EVA as a performance indicator in its listing requirements.
The IDX should provide more information to investors about the EVA and conventional profitability ratios of listed companies.
The IDX should consider developing a more comprehensive model of company performance that incorporates EVA and conventional profitability ratios.