Effect Of Net Profit Accounting, Operating Cash Flow, And Financial Ratio To Stock Prices In LQ45 Companies On The Indonesia Stock Exchange (IDX)

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Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast array of companies listed on its platform. The stock prices of these companies are constantly fluctuating, influenced by various factors, including their financial performance. In this study, we aim to analyze the effect of net profit, operating cash flow, and financial ratios on the share price of LQ45 companies listed on the IDX.

Background

The company's stock prices in the capital market are always fluctuating. One of the factors that influence the ups and downs of stock prices is the company's financial performance. Some important components that reflect financial performance include net income, operating cash flows, and financial ratios. These components are crucial in determining the company's ability to generate profits, manage its cash flows, and maintain its financial health.

Research Methodology

This study took a population of 60 LQ45 companies listed on the IDX during the 2009-2011 period, with 17 companies as samples. The data used is secondary data in the form of financial statements of each sample published at www.idx.co.id. The analysis method used is multiple linear regression, after first the classic assumption test is carried out. The independent variables used include net profit, operating cash flow, current ratio, price to profit (per), and price ratio to book value (PBV), with stock prices as dependent variables.

Results

The results showed that simultaneously, net profit, operating cash flow, current ratio, price ratio to profit (PER), and price ratio to Book Value (PBV) had a significant effect on stock prices. Partially, only the variable of net profit, operating cash flow, and price ratio to profit (PER) have a significant influence on stock prices, while the current variable ratio and price ratio on Book Value (PBV) have no significant effect on stock prices.

Deeper Analysis

These findings indicate that investors tend to pay more attention to net income, operating cash flows, and price ratios to profit (PER) in assessing stock prices. This shows that investors are more concerned with the profitability and ability of the company to generate profits and provide good return to investors.

Net Profit

Net profit is an indicator that shows the company's ability to generate profits from business activities. The higher the net profit, the better the company's performance, and tends to increase investor interest in buying the company's shares.

Operating Cash Flow

Operating cash flow reflects the company's ability to produce cash from its operational activities. Positive operating cash flow indicates that the company is able to produce cash from its operational activities and has the ability to pay off its short-term obligations. This is also an important consideration for investors in assessing company liquidity.

Price Ratio to Profit (PER)

Price ratio to profit (PER) is a ratio that shows how many times the stock price is multiplied by net profit per share. High shows that investors are willing to pay high prices for every rupiah profit generated by the company. This indicates that investors have high expectations of the growth of company profitability in the future.

Conclusion

This study provides empirical evidence of the significant influence of financial performance on stock prices in the Indonesian capital market. Investors tend to pay more attention to net income, operating cash flows, and price ratios to profit (per) in determining their investment decisions. The results of this study can be a reference for investors and companies in understanding the factors that affect stock prices and to improve the company's financial performance in order to attract investors.

Suggestion

Further research can be done by expanding company samples and adding other variables that are believed to have an influence on stock prices, such as leverage ratios and growth ratios. In addition, this research can also be studied in more depth by considering other factors such as macroeconomic conditions and market sentiment.

Implications

The findings of this study have several implications for investors, companies, and policymakers. Firstly, investors should pay more attention to the financial performance of companies, particularly net income, operating cash flows, and price ratios to profit (PER). Secondly, companies should focus on improving their financial performance by increasing their net income, operating cash flows, and price ratios to profit (PER). Finally, policymakers should consider the impact of financial performance on stock prices and develop policies to promote financial stability and growth.

Limitations

This study has several limitations. Firstly, the sample size is relatively small, which may limit the generalizability of the findings. Secondly, the study only considers a specific period, which may not capture the long-term effects of financial performance on stock prices. Finally, the study only considers a specific set of variables, which may not capture the full range of factors that influence stock prices.

Future Research Directions

Future research can build on the findings of this study by expanding the sample size, considering a longer period, and including other variables that may influence stock prices. Additionally, researchers can explore the impact of financial performance on stock prices in other countries and industries. Finally, researchers can investigate the role of other factors, such as macroeconomic conditions and market sentiment, in influencing stock prices.

References

  • [1] Indonesia Stock Exchange (IDX). (2022). Annual Report.
  • [2] LQ45. (2022). Annual Report.
  • [3] Multiple Linear Regression. (2022). Journal of Business and Economics.
  • [4] Net Profit. (2022). Journal of Accounting and Finance.
  • [5] Operating Cash Flow. (2022). Journal of Accounting and Finance.
  • [6] Price Ratio to Profit (PER). (2022). Journal of Accounting and Finance.

Note: The references provided are fictional and for demonstration purposes only.

Q: What is the significance of net profit in determining stock prices?

A: Net profit is an indicator that shows the company's ability to generate profits from business activities. The higher the net profit, the better the company's performance, and tends to increase investor interest in buying the company's shares.

Q: How does operating cash flow affect stock prices?

A: Operating cash flow reflects the company's ability to produce cash from its operational activities. Positive operating cash flow indicates that the company is able to produce cash from its operational activities and has the ability to pay off its short-term obligations. This is also an important consideration for investors in assessing company liquidity.

Q: What is the role of price ratio to profit (PER) in determining stock prices?

A: Price ratio to profit (PER) is a ratio that shows how many times the stock price is multiplied by net profit per share. High shows that investors are willing to pay high prices for every rupiah profit generated by the company. This indicates that investors have high expectations of the growth of company profitability in the future.

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

A: Investors should pay more attention to the financial performance of companies, particularly net income, operating cash flows, and price ratios to profit (PER). This will help them make informed investment decisions and avoid potential losses.

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

A: Companies should focus on improving their financial performance by increasing their net income, operating cash flows, and price ratios to profit (PER). This will help them attract investors and increase their stock prices.

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

A: Policymakers should consider the impact of financial performance on stock prices and develop policies to promote financial stability and growth. This will help them create a favorable business environment and attract foreign investment.

Q: What are the limitations of this study?

A: This study has several limitations, including a relatively small sample size, a specific period of consideration, and a limited set of variables. Future research should aim to address these limitations and provide a more comprehensive understanding of the relationship between financial performance and stock prices.

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

A: Future research can build on the findings of this study by expanding the sample size, considering a longer period, and including other variables that may influence stock prices. Additionally, researchers can explore the impact of financial performance on stock prices in other countries and industries.

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

A: The practical implications of this study are that investors should pay more attention to financial performance, companies should focus on improving their financial performance, and policymakers should develop policies to promote financial stability and growth.

Q: What are the theoretical implications of this study?

A: The theoretical implications of this study are that financial performance is a key determinant of stock prices, and that investors, companies, and policymakers should consider this relationship when making investment decisions, strategic planning, and policy development.

Q: What are the contributions of this study to the existing literature?

A: This study contributes to the existing literature by providing empirical evidence of the significant influence of financial performance on stock prices in the Indonesian capital market. It also highlights the importance of considering financial performance when making investment decisions, strategic planning, and policy development.

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

A: Future research can build on the findings of this study by exploring the impact of financial performance on stock prices in other countries and industries, and by considering other factors that may influence stock prices, such as macroeconomic conditions and market sentiment.