Understanding the Importance of Stock Price Analysis

Oct 13, 2025 by talynt.org 53 views

Understanding the Importance of Stock Price Analysis

Investing in the stock market can be a lucrative venture, but it requires a deep understanding of the factors that affect stock prices. In this study, we delve into the analysis of financial ratios such as Return on Assets (ROA), Return on Equity (ROE), Earning Per Share (EPS), and Price to Earning Ratio (PER) on stock prices, with dividend per share (DPS) as an intervening variable. This research focuses on 22 companies listed in the LQ 45 Indonesia Stock Exchange Index between 2015 and 2018.

Research Methodology: A Closer Look

The research sample was taken by the purposive sampling method, where we chose 22 companies that were consistently registered in the LQ 45 index and routinely distributed dividends during that period. By using multiple linear regression analysis and path analysis, this research seeks to provide a deeper understanding of the factors that affect stock prices.

Choosing the Right Sample

In selecting the sample, we considered the following criteria:

Consistency in registration in the LQ 45 index
Routine distribution of dividends
Availability of financial data for the period of 2015-2018

By using these criteria, we were able to select a sample of 22 companies that provided a comprehensive representation of the factors that affect stock prices.

Research Results: Uncovering the Factors

The results showed that four variables - Return on Equity (ROE), Earning Per Share (EPS), Price to Earning Ratio (PER), and Dividend Per Share (DPS) - have positive and significant influence on stock prices. This shows that the higher ROE, EPS, PER, and DPS, the higher the stock price that can be expected.

The Positive Effects of ROE, EPS, PER, and DPS

ROE: A higher ROE indicates that a company is generating profits efficiently, which can lead to higher stock prices.
EPS: A higher EPS indicates that a company is generating profits per share, which can lead to higher stock prices.
PER: A higher PER indicates that investors are willing to pay a higher price for a company's stock, which can lead to higher stock prices.
DPS: A higher DPS indicates that a company is distributing more dividends to shareholders, which can lead to higher stock prices.

Conversely, Return on Assets (ROA) shows a negative effect on stock prices. This may occur because investors see low ROA as an indication of the lack of effectiveness of the company in using its assets to generate profits, which can harm the value of shares.

The Negative Effect of ROA

ROA: A lower ROA indicates that a company is not using its assets effectively, which can lead to lower stock prices.

The Role of Dividend Per Share

DPS functions as an important mediation variable, only able to mediate the influence of ROA on stock prices. In other words, ROA has a negative effect on stock prices, but this negative influence can be minimized if the company provides dividends. This shows that dividend policy can be a balancing factor for companies with low ROA.

The Mediating Effect of DPS

DPS: DPS can mediate the negative effect of ROA on stock prices by providing a balancing factor for companies with low ROA.

Conclusion: Implications for Investors

The conclusion of this study provides valuable insights for investors and other stakeholders in making investment decisions. Understanding the factors that affect stock prices not only helps in analyzing a company's stock performance, but also provides an overview of how financial performance can affect investor expectations of stock value. Therefore, investors need to pay attention to not only profit performance but also dividend policies implemented by companies as part of their investment strategy.

Implications for Investors

Investors should consider the financial ratios of a company, including ROE, EPS, PER, and DPS, when making investment decisions.
Investors should also consider the dividend policy of a company, as it can have a significant impact on stock prices.
Investors should be aware of the negative effect of ROA on stock prices and consider the mediating effect of DPS.

With information obtained from this study, it is expected to provide guidance for investors in making more intelligent and informed decisions when investing in the stock market.

Future Research Directions

Further research can be conducted to explore the impact of other financial ratios on stock prices.
Research can also be conducted to explore the impact of dividend policy on stock prices in different industries.
Additionally, research can be conducted to explore the impact of ROA on stock prices in different economic conditions.

Understanding the Factors that Affect Stock Prices

In our previous article, we delved into the analysis of financial ratios such as Return on Assets (ROA), Return on Equity (ROE), Earning Per Share (EPS), and Price to Earning Ratio (PER) on stock prices, with dividend per share (DPS) as an intervening variable. In this article, we will answer some of the frequently asked questions related to the analysis of factors affecting stock prices.

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

A: The key factors that affect stock prices include financial ratios such as ROA, ROE, EPS, and PER, as well as dividend per share (DPS).

Q: How do financial ratios affect stock prices?

A: Financial ratios such as ROA, ROE, EPS, and PER can have a positive or negative effect on stock prices. For example, a higher ROE, EPS, and PER can lead to higher stock prices, while a lower ROA can lead to lower stock prices.

Q: What is the role of dividend per share (DPS) in affecting stock prices?

A: DPS can mediate the negative effect of ROA on stock prices by providing a balancing factor for companies with low ROA.

Q: How can investors use this information to make informed investment decisions?

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

A: The implications of this study are that investors should consider the financial ratios of a company, including ROE, EPS, PER, and DPS, when making investment decisions. They should also consider the dividend policy of a company, as it can have a significant impact on stock prices.

Q: What are the limitations of this study?

A: The limitations of this study are that it only considered 22 companies listed in the LQ 45 Indonesia Stock Exchange Index between 2015 and 2018. Further research is needed to explore the impact of other financial ratios on stock prices and to consider the impact of dividend policy in different industries.

Q: What are the future research directions for this study?

A: Future research directions include exploring the impact of other financial ratios on stock prices, exploring the impact of dividend policy on stock prices in different industries, and exploring the impact of ROA on stock prices in different economic conditions.

Q: How can investors use this information to make more intelligent and informed decisions when investing in the stock market?

A: Investors can use this information to consider the financial ratios of a company, including ROE, EPS, PER, and DPS, when making investment decisions. They should also consider the dividend policy of a company, as it can have a significant impact on stock prices. By considering these factors, investors can make more intelligent and informed decisions when investing in the stock market.

Q: What are the benefits of understanding the factors that affect stock prices?

A: The benefits of understanding the factors that affect stock prices include being able to make more informed investment decisions, being able to identify potential risks and opportunities, and being able to develop a more comprehensive understanding of the stock market.

Q: How can investors stay up-to-date with the latest research and developments in the field of stock market analysis?

A: Investors can stay up-to-date with the latest research and developments in the field of stock market analysis by following reputable sources, attending industry conferences and seminars, and participating in online forums and discussions.

Q: What are the key takeaways from this study?

A: The key takeaways from this study are that financial ratios such as ROA, ROE, EPS, and PER can have a positive or negative effect on stock prices, that DPS can mediate the negative effect of ROA on stock prices, and that investors should consider the financial ratios of a company, including ROE, EPS, PER, and DPS, when making investment decisions.