The Role of ROE and EPS in Stock Prices

Oct 13, 2025 by talynt.org 63 views

The Effect of Profitability, Solvency, and Inflation on Stock Prices in Manufacturing Companies in the Consumer Goods Industry Sector Listed on the IDX for the 2015-2017 Period

Introduction

In the world of investment, stock prices are often influenced by various fundamental factors that reflect company health and performance. The consumer goods industry is one of the most competitive sectors in the market, with numerous companies vying for market share. As a result, investors are constantly seeking ways to make informed decisions about which companies to invest in. This study focuses on the influence of several variables, namely Return on Equity (ROE), Earning Per Share (EPS), Debt to Assets Ratio (DAR), Debt to Equity Ratio (DER), and inflation on the share prices of manufacturing companies in the sector of the consumer goods industry listed on the Indonesia Stock Exchange (IDX) during the 2015 to 2017 period.

Research Methodology

This study uses a purposive sampling technique to determine the sample. Of the total 46 registered companies, 24 companies were selected as samples, producing a total of 72 observations for three years. The data used is secondary data taken from the official website of the Indonesia Stock Exchange. To analyze data, this study applied several techniques, including descriptive analysis, classical assumption tests, multiple linear regression analysis, and significance tests.

Research Result

The results of the analysis show that partially, return on equity (ROE) and Earning Per Share (EPS) have a significant effect on stock prices. This shows that the improvement of the company's performance reflected in ROE and EPS can increase investor confidence, thus affecting stock prices positively. Conversely, Debt to Assets Ratio (DAR), Debt to Equity Ratio (DER), and inflation do not show a significant effect on stock prices on the companies under study.

The Role of ROE and EPS in Stock Prices

The effect of ROE and EPS on stock prices can be understood as a reflection of high profitability. A good ROE shows the efficiency of management in generating profits from the capital invested by shareholders. Meanwhile, EPS is an important indicator for investors because it reflects the profit that can be distributed to shareholders. Investors tend to be more interested in buying company shares that have high ROE and EPS, because this shows the potential for better growth and return.

The Limited Impact of Solvency Indicators

On the other hand, DAR and DER, which is a solvency indicator, shows how much debt the company has compared to its assets and equity. Although solvency is important to evaluate financial risks, in the context of this study, these factors do not seem to have enough influence in investor decisions in the short term. This may be caused by investor perceptions that are more focused on company operational performance, especially in the very competitive consumer goods industry sector.

The Limited Impact of Inflation

Inflation is also a factor that does not show a significant impact on the stock price in this study. Although inflation can affect consumer purchasing power and, in the end, company performance, investors may have taken into account the risk of inflation in their assessment of shares.

Conclusion

Based on the results of the study, it can be concluded that ROE and EPS are key indicators that can affect the stock prices of manufacturing companies in the consumer goods industry sector listed on the IDX. Although DAR, DER, and inflation do not show a partial significant effect, the simultaneous effect of all these variables remains visible at the stock price. This study provides valuable insights for investors and company management in making investment decisions that are more informed and strategic.

Implications for Investors and Company Management

The findings of this study have several implications for investors and company management. Firstly, investors should focus on companies with high ROE and EPS, as these indicators are closely related to stock prices. Secondly, company management should prioritize improving operational performance, as this can lead to higher ROE and EPS. Finally, investors and company management should be aware of the limited impact of solvency indicators and inflation on stock prices, and should not overemphasize these factors in their decision-making.

Limitations of the Study

This study has several limitations that should be noted. Firstly, the study only focuses on manufacturing companies in the consumer goods industry sector listed on the IDX, and may not be generalizable to other sectors or companies. Secondly, the study only uses secondary data, which may not be comprehensive or up-to-date. Finally, the study only analyzes the effect of ROE, EPS, DAR, DER, and inflation on stock prices, and may not consider other factors that may influence stock prices.

Future Research Directions

This study provides several avenues for future research. Firstly, researchers can investigate the effect of other fundamental factors, such as cash flow and dividend yield, on stock prices. Secondly, researchers can analyze the effect of ROE, EPS, DAR, DER, and inflation on stock prices in other sectors or companies. Finally, researchers can investigate the impact of other macroeconomic factors, such as interest rates and economic growth, on stock prices.

Conclusion

In conclusion, this study provides valuable insights into the effect of profitability, solvency, and inflation on stock prices in manufacturing companies in the consumer goods industry sector listed on the IDX. The findings of this study have several implications for investors and company management, and provide several avenues for future research.
Frequently Asked Questions (FAQs) about the Effect of Profitability, Solvency, and Inflation on Stock Prices

Q: What is the main focus of this study?

A: The main focus of this study is to investigate the effect of profitability, solvency, and inflation on stock prices in manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange (IDX) during the 2015 to 2017 period.

Q: What are the key indicators that affect stock prices?

A: The key indicators that affect stock prices are Return on Equity (ROE) and Earning Per Share (EPS). These indicators reflect the company's profitability and operational performance.

Q: Why do investors focus on ROE and EPS?

A: Investors focus on ROE and EPS because they reflect the company's ability to generate profits and distribute them to shareholders. High ROE and EPS indicate a company's potential for better growth and return.

Q: What is the role of solvency indicators in stock prices?

A: Solvency indicators, such as Debt to Assets Ratio (DAR) and Debt to Equity Ratio (DER), show how much debt a company has compared to its assets and equity. While solvency is important, it does not seem to have enough influence in investor decisions in the short term.

Q: How does inflation affect stock prices?

A: Inflation does not show a significant impact on stock prices in this study. Investors may have taken into account the risk of inflation in their assessment of shares.

Q: What are the implications of this study for investors and company management?

A: The findings of this study have several implications for investors and company management. Investors should focus on companies with high ROE and EPS, while company management should prioritize improving operational performance.

Q: What are the limitations of this study?

A: This study has several limitations, including the focus on manufacturing companies in the consumer goods industry sector listed on the IDX, the use of secondary data, and the analysis of only a few fundamental factors.

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

A: Future research directions include investigating the effect of other fundamental factors, such as cash flow and dividend yield, on stock prices, analyzing the effect of ROE, EPS, DAR, DER, and inflation on stock prices in other sectors or companies, and investigating the impact of other macroeconomic factors on stock prices.

Q: What are the practical implications of this study for investors and company management?

A: The practical implications of this study are that investors should focus on companies with high ROE and EPS, while company management should prioritize improving operational performance. This can lead to better investment decisions and improved company performance.

Q: How can investors use the findings of this study to make informed investment decisions?

A: Investors can use the findings of this study to focus on companies with high ROE and EPS, and to prioritize improving operational performance. This can help investors make informed investment decisions and achieve better returns.

Q: What are the potential risks and challenges associated with this study?

A: The potential risks and challenges associated with this study include the limitations of the data and the analysis, the potential for biases in the data, and the potential for changes in market conditions that may affect the findings of the study.