The Influence Of Profitability, Leverage, And Cash Flow On Stock Returns In The Pharmaceutical Sector Company Listed On The Indonesia Stock Exchange

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The Influence of Profitability, Leverage, and Cash Flow on Stock Returns in the Pharmaceutical Sector Company Listed on the Indonesia Stock Exchange

Introduction

The pharmaceutical sector is one of the most dynamic and rapidly growing industries in the world, with a significant impact on the economy and society. In Indonesia, the pharmaceutical sector is also growing rapidly, with many companies listed on the Indonesia Stock Exchange (IDX). However, the performance of these companies can be affected by various factors, including profitability, leverage, and cash flow. This study aims to examine the effect of these variables on stock returns in pharmaceutical sector companies listed on the IDX.

Overview and Research Methodology

The pharmaceutical sector is a highly competitive industry, with many companies competing for market share and profitability. In Indonesia, the pharmaceutical sector is dominated by a few large companies, with many smaller companies also operating in the market. The sector is characterized by high research and development costs, stringent regulatory requirements, and intense competition.

This study examined panel data from 10 pharmaceutical manufacturing companies listed on the IDX in the 2015-2020 period. Of the 10 companies, 8 companies were chosen as research samples based on certain criteria, including market capitalization, profitability, and leverage. The method used is descriptive analysis and multiple linear regression, with the help of EViews software.

Research and Analysis Results

The results of this study show that profitability, leverage, and operating cash flows have a significant effect on stock returns in pharmaceutical sector companies listed on the IDX. However, the partial effect of each variable shows different results:

*** Profitability (ROA) has a positive and significant influence on stock returns. This means that the higher the company's profitability, the higher the stock returns produced. This is because investors tend to be more interested in companies with high profitability, as they are expected to provide greater benefits in the future.

*** Leverage (DAR) has a negative and significant influence on stock returns. This means that the higher the company's leverage, the lower the stock returns obtained. High leverage shows that the company has a large level of debt, which can increase the risk for investors due to the potential difficulty in paying off debt.

*** Operating cash flow also has a negative and significant influence on stock returns. This means that high operating cash flows are not always directly proportional to stock returns. This can happen because the company may invest most of its operating cash flow in fixed assets or new projects, which do not necessarily provide a fast and significant return.

Implications and Recommendations

These findings have important implications for investors, pharmaceutical companies, and capital market regulators. For investors, these results show that profitability is a major factor that needs to be considered in choosing shares in the pharmaceutical sector. However, keep in mind that leverage and operating cash flows also need to be analyzed carefully, as they can provide indications of risk and investment opportunities.

For pharmaceutical companies, these results indicate that efforts to increase profitability will have a positive impact on stock returns and investor attractiveness. The company must also pay attention to leverage management and operating cash flow to minimize risk and increase company value.

For capital market regulators, the results of this study can be used as a reference in developing policies and regulations that support the growth of the pharmaceutical sector and increase investor confidence.

Conclusion

This study shows that profitability, leverage, and operating cash flows have a significant influence on stock returns in the pharmaceutical sector. Investors need to pay attention to these three factors to make the right investment decisions. Pharmaceutical companies also need to focus on increasing profitability and leverage management and healthy operating cash flows to maximize company value and attract investors.

Limitations and Future Research Directions

This study has several limitations, including the use of a small sample size and the limited time period of the data. Future research can focus on using a larger sample size and a longer time period to examine the effect of profitability, leverage, and cash flow on stock returns in the pharmaceutical sector. Additionally, future research can also examine the effect of other variables, such as research and development expenses and marketing expenses, on stock returns in the pharmaceutical sector.

References

  • [1] Agency for the Assessment and Application of Technology (BPPT). (2020). Indonesian Pharmaceutical Industry Report.
  • [2] Indonesia Stock Exchange (IDX). (2020). List of Pharmaceutical Companies Listed on IDX.
  • [3] World Health Organization (WHO). (2020). Global Health Observatory (GHO) Data.

Appendices

  • Appendix A: List of Pharmaceutical Companies Included in the Study
  • Appendix B: Descriptive Statistics of the Variables Used in the Study
  • Appendix C: Results of the Multiple Linear Regression Analysis
    Frequently Asked Questions (FAQs) about the Influence of Profitability, Leverage, and Cash Flow on Stock Returns in the Pharmaceutical Sector

Q: What is the main objective of this study?

A: The main objective of this study is to examine the effect of profitability, leverage, and cash flow on stock returns in pharmaceutical sector companies listed on the Indonesia Stock Exchange (IDX).

Q: What is the significance of this study?

A: This study is significant because it provides insights into the factors that affect stock returns in the pharmaceutical sector, which can help investors make informed investment decisions. Additionally, the study can also provide guidance for pharmaceutical companies on how to manage their profitability, leverage, and cash flow to maximize their stock returns.

Q: What are the key findings of this study?

A: The key findings of this study are that profitability, leverage, and operating cash flows have a significant effect on stock returns in pharmaceutical sector companies listed on the IDX. Specifically, the study found that:

  • Profitability (ROA) has a positive and significant influence on stock returns.
  • Leverage (DAR) has a negative and significant influence on stock returns.
  • Operating cash flow also has a negative and significant influence on stock returns.

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

A: The implications of this study for investors are that they need to pay attention to profitability, leverage, and operating cash flows when making investment decisions in the pharmaceutical sector. Investors should consider these factors when evaluating the potential of a company to generate returns on their investment.

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

A: The implications of this study for pharmaceutical companies are that they need to focus on increasing profitability and managing their leverage and operating cash flows to maximize their stock returns. Companies that can achieve high profitability, manage their leverage effectively, and generate healthy operating cash flows are more likely to attract investors and achieve high stock returns.

Q: What are the implications of this study for capital market regulators?

A: The implications of this study for capital market regulators are that they can use the findings of this study to develop policies and regulations that support the growth of the pharmaceutical sector and increase investor confidence. Regulators can also use the study to monitor the performance of pharmaceutical companies and ensure that they are managing their profitability, leverage, and cash flow effectively.

Q: What are the limitations of this study?

A: The limitations of this study are that it uses a small sample size and a limited time period. Future research can focus on using a larger sample size and a longer time period to examine the effect of profitability, leverage, and cash flow on stock returns in the pharmaceutical sector.

Q: What are the future research directions?

A: Future research can focus on examining the effect of other variables, such as research and development expenses and marketing expenses, on stock returns in the pharmaceutical sector. Additionally, future research can also examine the effect of profitability, leverage, and cash flow on stock returns in other industries.

Q: What are the practical implications of this study?

A: The practical implications of this study are that it can help investors, pharmaceutical companies, and capital market regulators make informed decisions about the pharmaceutical sector. The study can also provide guidance for pharmaceutical companies on how to manage their profitability, leverage, and cash flow to maximize their stock returns.

Q: What are the theoretical implications of this study?

A: The theoretical implications of this study are that it provides insights into the factors that affect stock returns in the pharmaceutical sector. The study can also contribute to the development of new theories and models that explain the relationship between profitability, leverage, and cash flow and stock returns in the pharmaceutical sector.

Q: What are the policy implications of this study?

A: The policy implications of this study are that it can inform the development of policies and regulations that support the growth of the pharmaceutical sector and increase investor confidence. The study can also provide guidance for capital market regulators on how to monitor the performance of pharmaceutical companies and ensure that they are managing their profitability, leverage, and cash flow effectively.