PRECISION OF FUNDAMENTAL TECHNIQUES APPLICATION IN ANALYZING STOCK PRICE

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1 Volume 116 No , ISSN: (printed version); ISSN: (on-line version) url: ijpam.eu PRECISION OF FUNDAMENTAL TECHNIQUES APPLICATION IN ANALYZING STOCK PRICE Sri Rahayu, Abdul Rohman Faculty of Economics and Business of Universitas Budi Luhur Doctoral Program of Economics Universitas Diponegoro ABSTRACT This study objectives is to find empirical evidence of the accuracy of fundamental techniques to analyze stock prices by testing the effect of Cash Ratio, Earning Per Share, Debt to Equity Ratio, Price to Book Value, and interest rates, exchange rates and inflation to stock prices. The type of data in this research is secondary data. The population is a company incorporated in LQ4 during the period , with purposive method obtained as many as 16 companies. All data that has met the criteria that have been determined then tested using multiple linear regression analysis tools with the help of software SPSS ver Based on the result of t significance test shows that only Debt to Equity Ratio variable has significant negative effect and Price to Book Value has positive effect significantly to share price, it means that the right fundamental technique can use both variables to analyze stock price. The result of F significance test shows probability value of means that this research model is feasible to be used as a prediction. Keywords: stock prices, fundamental techniques 1. Introduction 1.1. Research Background Among stocks in the Indonesian capital market, the shares incorporated in the LQ4 Index published by the Indonesia Stock Exchange are shares of great interest to investors. This index consists of 4 stocks with high liquidity (liquid) selected through several selection criteria. Index LQ4 as one indicator of stock index on the Stock Exchange which can be used as a reference to assess the performance of stock trading because LQ4 stock has a high capitalization and trading frequency so that the growth prospects and financial condition of the stock is good. Shares LQ4 is an active stock so that it can constantly experience price changes. LQ4 stock price movements tend to increase, this is what makes the reasons for investors to invest some funds in the stock index LQ4. But in the year 2013 there was a decline in stock prices index LQ4. The following table shows the movement of stock prices closing index LQ4 during the year : Table 1 Stock Price Index Index LQ4 Period Tahun Harga Saham 1 427

2 , , , , ,810 Source : Based on Table 1 shows that stock prices always fluctuate because it is influenced by several factors. According to Brigham and Houston (2010: 8) revealed that fluctuations in stock prices are in line with changes in information and conditions received by investors about the prospects of the company. The analytical tools that can be used by investors to assess the prospect of companies such as the ratio of financial statements and market value ratios. The ratio of financial statements relating to the capital market and examined in this study is the liquidity ratio proxied by Cash Ratio, profitability ratios proxied by Earning per Share, Leverage ratio proxied by Debt to Equity Ratio, and the ratio of valuation or market value ratio proxied With Price to Book Value (Utomo, 201 and Patar, 2014). Similarly, the macroeconomic environment affects the day-to-day operations of the company. The ability of investors to understand and forecast future macroeconomic conditions will be very useful in making profitable investment decisions. To overcome these market situations, an investor should consider several macroeconomic indicators related to the capital market such as fluctuations in interest rates, inflation, rupiah exchange rate, and growth of Gross Domestic Product (Patar, 2014). 1.2 Research Framework This study aims to find empirical evidence of the accuracy of fundamental techniques to analyze stock prices by testing the effect of Cash Ratio, Earning Per Share, Debt To Equity Ratio, Price To Book Value, interest rates, exchange rates and inflation to stock prices LQ4 period So from the explanation can be described in the form of diagrams presented in the following figure: Cash Ratio (X1) Earning Per Share (X2) Debt To Equity Ratio(X3) 2 428

3 Price To Book Value (X4) Stock Price (Y) Interest Rate (X) Exchange Rate (X6) Inflation (X7) Figure 1 Research Framework 2. Literature Review 2.1 Signal Theory According to Wolk et al (2001) in Patar (2014) the signaling theory explains the reason the company presents information for the capital market. The signal theory is based on the assumption that the information received by each party is not the same. This indicates the existence of information asymmetry between the management company and the parties concerned with the information. Signal theory suggests how a company should signal to the user. Signals can be promotions or information through financial statements that suggest that the company is better than other companies. Information received by the investor first translates as a good signal or a bad signal. If the profit reported by the firm increases then the information can be categorized as a good signal because it indicates good company condition. Conversely, if the reported earnings decreased then the company is in bad condition that is considered as a bad signal Arbitrage Pricing Theory (APT) The Approach of Arbitrage Pricing Theory (APT) developed by Ross (1976) and Chen (1986) suggests that APT is an asset pricing model based on an idea that the return of an asset can be predicted using the relationship between the same asset and other factors. Risk factors in general. This theory predicts the correlation between the return of a prorax and the return of a single asset through a linear combination of many independent macroeconomic variables. Arbitrage Pricing Theory (APT) which states stock returns are linearly correlated with APT factor. Factors in APT can be interpreted as macroeconomic variables that affect stock price movements. 2.3 Stock Price Stock price is the price contained in the capital share ownership letter based on the market valuation that is affected by the demand and supply in the stock exchange 3 429

4 (Purnamawati, 2013). If the company achieves a good performance, then the stock of the company will be much in demand by many investors. Good achievements achieved by the company can be seen in the financial statements published by the company (issuer). In this study, the indicator used to measure stock prices is the annual closing market share price. According to Anoraga (2006) in Patar (2014) the stock price is the price on the real market which is the most easily determined price because the price of a stock on an ongoing market or a closed market, this means the stock price is the closing price on the market Real. 2.4 Cash Ratio Cash Ratio measures the ability of a company to meet its current liability through cash and cash equivalents, which can be withdrawn at any time owned by the company. According to Munawir (2010: 239), liquidity in this case Cash Ratio can be measured by using the formula as follows : Cash ratio = Cash/Current Cashflows (Source: Brigham & Houston, 2010:9) So big enough cash makes the company has a large capital and can run the company's operations. Large capital firms can retain investors and not move into other corporate investors. So it can be stated that with increasing Cash Ratio, it can increase investor confidence because company pay dividend which is expected by investor (Utomo, 201). Ha1: Cash ratio has a signicant correlation toward LQ4 shares 2. Earning Per Share Earnings Per Share is a company's profitability analysis tool that uses the concept of conventional earnings. EPS is one of two commonly used measuring tools to evaluate common stock in addition to PER (Price Earning Ratio). According to Dictionary of Accounting earning per share is the net income of the company for a year divided by the average number of shares outstanding, with net income reduced by the preferred stock calculated for the year. The formula used is: (Source: Dedi, 2014) One reason investors buy stocks is to earn dividends, if the value of earnings per small share is also a small possibility of companies to distribute dividends. So it can be said that investors will be more interested in stocks that have high earnings per share than stocks that have low earnings per share. Low Earnings per share tends to keep stock prices down (Dedi, 2014) 4 430

5 Ha2 : Earning Per Share has positive correlation toward LQ4 stock price 2.6 Debt To Equity Ratio Debt to Equity Ratio (DER) Is the ratio that compares the amount of debt to equity. The higher the DER number is then assumed that the company has a higher risk to the company's liquidity. DER can be formulated below: DER = Total Liabilities/Total Equity (Source: Dedi, 2014) This ratio shows the composition of debt (long-term and short-term) with the total capital itself which impacts the greater the burden on the company's outsider (creditor). This shows the source of the company's capital depends on the outside party which resulted in the greater risk to be borne by the investor, thus reducing the interest of investors in investing capital to the company. The decline in investor interest has resulted in a decline in stock prices. (Patar, 2014) Ha3 : Debt To Equity Ratio has no positive correlation toward LQ4 stock price 2.7 Price To Book Value According to Patar (2014) Price to Book Value (PBV) is a calculation or comparison between market value and book value of a stock used to measure stock market performance. Mathematically Price to Book Value and book value can be formulated as follows: PBV = share price per earning / book value price per earning (Source: Moeljadi, 2006) PBV illustrates how much the market appreciates the value of a company's stock book, by measuring the PBV investors will get an idea of the worthiness of a stock's price. The higher the PBV ratio means the market believes in the prospect of the company, so it can attract investors to invest their capital that impacts the stock price of a company (Patar, 2014). Ha4: Price To Book Value has a significant positive effect on LQ4 stock price 2.8 Interest Rate The interest rate can be one of the reference economic conditions. High interest rates will hinder the movement of the real sector, otherwise the real sector will be excited when interest rates are low. Although there are still many other factors that affect the real 431

6 sector, such as fiscal policy, tax incentives, political stability, security, infrastructure, and so on. Purnamawati (2013) states that the indicators used to measure interest rates are: Interest Rate = Indonesian Federal Bank Rate In general, an increase in interest rates will absorb liquidity in the market that will eventually trigger a decline in stock prices as many market participants sell their shares. Conversely, the decline in interest rates will make market participants optimistic about real sector conditions that encourage market participants to buy shares which of course will make stock prices move up (Purnamawati, 2013). Ha: Interest rates have a significant negative effect on stock prices. 2.9 Exchange Rate The exchange rate or exchange rate is the price of the domestic currency against the foreign currency (Patar, 2014). Midpoint of Bank Indonesia USD / IDR Currency Rate using Reference Rate (Bank Indonesia, 2013). So the indicator to measure the exchange rate is: Exchange Rate = Middle indonesian Federal Bank Rate (Source: Purnamawati, 2013) The exchange rate will have an impact on stock price movements. For investors the low rate of exchange rate is a good sign, it indicates the stable economy of a country and can be used as investment land. According to Sunariyah (2006) the decline in exchange rates can increase the cost of raw materials imports and increase interest rates although it can increase exports, thus negatively affecting the economy and capital markets. Ha6: Rupiah exchange rate has a significant negative effect on LQ4 stock price 2.10 Inflation Inflation is defined as rising prices in general and continuously. Inflation describes the economic conditions in which an increase in the price of products as a whole resulting in a decline in purchasing power of money (Tandelilin, 2010). In this study, the indicators used to measure inflation are: Inflation = Consumer Price Index (CPI) (Source : Patar, 2014) The statement indicates that the decline in inflation is a good signal for investors, because along with the decreased risk of purchasing power and the risk of real income. Inflation rate is quite influential on stock prices with a relationship that is inversely proportional. Stock prices will rise if inflation is low, and otherwise stock 6 432

7 prices tend to fall when inflation is high. Research Purnamawati (2013) found that inflation has a negative influence on stock prices. Ha7: Inflation has a significant negative effect on LQ4 stock price 3. Research Methodology 3.1 Population and Samples The method used in this study is a causal method to find the relationship between independent variables as the cause with the dependent variable as a result. The data used are secondary data in the form of annual financial statements of companies listed in LQ4 based on the official website of Indonesia Stock Exchange ( Research population includes all companies listed in LQ4 period as many as 4 companies, with purposive sampling technique obtained sample of 16 companies. 3.2 Data Analysis Research data that has been collected and then tested by data analysis technique used is multiple linear regression. Regression analysis technique is a statistical tool that can predict future events. While the data processing in this study using the tool program Stable Package For The Social Science (SPSS) version 23.0 and Microsoft Excel For Windows Presentation of test results with multiple linear regression analysis include descriptive data, descriptive statistics, regression test and hypothesis testing. 4. Result and Discussion 4.1 Descriptive Data The sample of this study amounted to 16 companies listed in LQ observation periods presented in the following table: Table 2. Company List As Research Samples No. Emiten Code Company Listing Name 1. AALI ASTRA AGRO LESTARI TBK 2. ADRO ADARO ENERGY TBK 3. ASII ASTRA INTERNATIONAL TBK 4. GGRM GUDANG GARAM TBK. INDF INDOFOOD SUKSES MAKMUR TBK 6. INTP INDOCEMENT TUNGGAL PRAKARSA TBK 7. ITMG INDO TAMBANGRAYA MEGAH TBK 7 433

8 8. JSMR JASA MARGA (PERSERO) TBK 9. KLBF KALBE FARMA 10 LSIP LONDON SUMATERA PLANTATION TBK 11 PGAS PERUSAHAAN GAS NEARA (PERSERO) TBK 12 PTBA TAMBANG BATU BARA BUKIT ASAM (PERSERO) TBK 13 SMGR SEMEN GRESIK (PERSERO) TBK 14 TLKM TELEKOMUNIKASI INDONESIA (PERSERO) TBK 1 UNTR UNITED TRACTORS TBK 16 UNVR UNILEVER INDONESIA TBK 4.2 Descriptive Statistics The following table presents the data that have been collected based on the output of SPSS

9 Table 3. Descriptive Statistics Mean Std. Deviation N sqrt_y ln_x ln_x ln_x ln_x ln_x ln_x ln_x Regression Test Analysis Based on the multiple linear regression test results in Table 4 show that Coefficients unstandardized Beta value of X3 and X4 of 1281, due to the second unit while the variable is Ln Y unit is sqrt, the beta value of these two variables must be converted into the anti Ln How to do calculations on excel with the formula: = EXP (number of anti Ln) enter. Thus, the regression equation is formulated Y = 8,074-4,191X3 + 3,600X4 + e Table 4. Coefficients Standardi Unstandard zed ized Coefficien Si Collinearity Model Coefficients ts t g. Correlations Statistics 9 43

10 Z St er d. o- Er or P ro d Part ar Toler B r Beta er ial t ance VIF 1 (Const ant) ln_x (Const ant) ln_x ln_x Hypothesis Result Analysis Based on test result t test in table 4 shows that the value of probability ratio of cash equal to 0,928> 0,0, probability value of earnings per share equal to 0,178> 0,0 probability value Debt To Equity Ratio equal to 0,019 <0,0, probability value Price to

11 Book Value of <0.0, the probability value of the interest rate of , the probability value of the exchange rate of , the inflation probability value of Thus the results of this output indicate that in this study successfully resisted H04 and H03 but failed to resist H01, H02, H0, H06 and H07.. Conclusion and Recommendation.1 Conclusion Shares of companies incorporated in Index LQ4 are stocks that have high capitalization and high trading frequency so that the growth prospects and financial condition of the issuer is good. Based on the results of research that has been described previously, it can be concluded this study provides empirical evidence that In the event of changes in interest rates, exchange rates and even unstable inflation does not affect the decision of investors in investing shares LQ4. It is indicated that changes in the interest rate are considered by investors to be balancing from the inflation rate, while the average middle rate of BI does not reach 10,000 so it is still considered fair, while the inflation change is also not excessive only between 6.96% %. Furthermore, other empirical evidence indicates that EPS that does not mention EPS basic or EPS diluted then tend not to provide accurate information and Cash Ratio is seen as an indicator of liquidity level only, so it does not become a serious concern for investors. However, investors are more interested in seeing Price Book Value as a reflection of the success rate of management in running the company and managing the resources reflected in the year-end stock price. In addition, the Debt to Equity Ratio that describes the risk level of the company in fulfilling all its obligations with its own capital is also taken into account by investors in investing LQ4 shares..2 Recommendation Future research should have a longer period of observation than the observation period in this study or the period at which the fluctuation of stock prices is significant or phenomenal, if further research is based on phenomena. The number of research samples should be multiplied, not only in the company incorporated in the LQ4 index alone and can also propose variations of models using variables from one side of the fundamentals (fundamental financial ratios or macro fundamental) to avoid data abnormalities. So the results of his research can be used as a prediction reference for decision making. References Anoraga, Pandji Pengantar Pasar Modal, Cetakan Kelima. PT Rineka Cipta, Jakarta. Brigham dan Houston Dasar-dasar Manajemen Keuangan. Jakarta: Salemba Empat, pp: Bursa Efek Indonesia Fromhttp://

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