Textile and garment companies listed on the Indonesia Stock Exchange should focus on increasing profitability

Oct 13, 2025 by windailys.com 128 views

Introduction

In the world of investment, understanding the factors that affect stock prices is crucial, especially for investors who want to invest in specific sectors, such as textiles and garments. This study aims to investigate and analyze the effect of financial performance, including liquidity (current ratio), profitability (return on equity, return on investment, earnings per share), and inventory turnover on stock prices of textile and garment companies listed on the Indonesia Stock Exchange.

Background

The textile and garment industry is a significant sector in the Indonesian economy, with 25 companies listed on the Indonesia Stock Exchange between 2009 and 2012. This study took a sample of 16 companies using purposive sampling techniques. The data used was secondary data in the form of audited financial statements, obtained from the Indonesia Stock Exchange and the www.idx.co.id site, as well as stock price data taken from www.finance.yahoo.com. The analysis method used was statistical analysis with the help of SPSS software, applying the t-test (for partial testing) and the F-test (for simultaneous testing) after meeting the classic assumptions.

Methodology

The study used a quantitative approach, analyzing the financial performance of textile and garment companies listed on the Indonesia Stock Exchange. The data used was secondary data, obtained from the Indonesia Stock Exchange and the www.idx.co.id site. The analysis method used was statistical analysis, applying the t-test (for partial testing) and the F-test (for simultaneous testing) after meeting the classic assumptions.

Main Findings

The results showed that partially, there was a significant effect of Return on Equity (ROE), Return on Investment (ROI), and Earnings Per Share (EPS) on stock prices. Conversely, the current ratio (CR) and inventory turnover did not show a significant effect on stock prices. This means that investors pay more attention to the company's profitability performance in determining the value of shares than only paying attention to inventory liquidity and efficiency.

In simultaneous testing, the current ratio, return on equity, return on investment, and earnings per share variables jointly affect stock prices. This shows that although CR and Inventory Turnover are not significantly significant, they remain an important part of the overall analysis of the company's financial performance.

Additional Analysis

The effect of return on equity (ROE) on stock prices is very important because it reflects how effective the company is in using shareholder capital to generate profits. The higher ROE, the better the company's performance, which can increase investor confidence and encourage stock prices to rise.

Return on Investment (ROI) is also an important indicator for investors, because this shows how well the investment is made by the company in generating profits. A high ROI indicates that the company is efficient in utilizing resources for profit.

Earnings per share (EPS) is another measure that is often considered by investors. High EPS shows that companies have good profit potential and can provide dividends to shareholders, which in turn attract more investors.

Conversely, the current ratio and inventory turnover, although they are important indicators in financial analysis, apparently do not show a significant direct effect on stock prices. This may be caused by the fact that investors tend to focus more on earnings and growth performance rather than just liquidity or how quickly the company can manage its inventory.

Conclusion

From this analysis, it can be concluded that for textile and garment companies listed on the Indonesia Stock Exchange, profitability performance such as ROE, ROI, and EPS has a greater influence on stock prices compared to liquidity (current ratio) and inventory management efficiency (inventory turnover). Therefore, companies in this sector are advised to focus on increasing profitability to attract more investors and increase the value of their shares.

With this understanding, it is hoped that investors can make better decisions in investing in the textile and garment sectors, as well as understanding relevant financial performance in predicting stock price movements.

Recommendations

Based on the findings of this study, the following recommendations are made:

Textile and garment companies listed on the Indonesia Stock Exchange should focus on increasing profitability to attract more investors and increase the value of their shares.
Investors should pay more attention to the company's profitability performance in determining the value of shares rather than only paying attention to inventory liquidity and efficiency.
Companies should improve their return on equity (ROE), return on investment (ROI), and earnings per share (EPS) to increase investor confidence and encourage stock prices to rise.
Investors should consider the current ratio and inventory turnover as important indicators in financial analysis, although they may not show a significant direct effect on stock prices.

Limitations of the Study

This study has several limitations, including:

The study only analyzed textile and garment companies listed on the Indonesia Stock Exchange, which may not be representative of the entire textile and garment industry.
The study used secondary data, which may not be up-to-date or accurate.
The study only analyzed the effect of liquidity, profitability, and inventory turnover on stock prices, which may not be the only factors affecting stock prices.

Future Research Directions

Future research directions include:

Analyzing the effect of other factors on stock prices, such as market sentiment, economic conditions, and industry trends.
Conducting a study on the textile and garment industry in other countries, to compare the findings with those of this study.
Analyzing the effect of liquidity, profitability, and inventory turnover on stock prices in other industries, to compare the findings with those of this study.

Conclusion

In conclusion, this study found that profitability performance, such as ROE, ROI, and EPS, has a greater influence on stock prices compared to liquidity (current ratio) and inventory management efficiency (inventory turnover) for textile and garment companies listed on the Indonesia Stock Exchange. Therefore, companies in this sector are advised to focus on increasing profitability to attract more investors and increase the value of their shares. With this understanding, it is hoped that investors can make better decisions in investing in the textile and garment sectors, as well as understanding relevant financial performance in predicting stock price movements.

Q1: What is the significance of this study?

A1: This study aims to investigate and analyze the effect of financial performance, including liquidity (current ratio), profitability (return on equity, return on investment, earnings per share), and inventory turnover on stock prices of textile and garment companies listed on the Indonesia Stock Exchange. The findings of this study can provide valuable insights for investors, policymakers, and companies in the textile and garment industry.

Q2: What are the key findings of this study?

A2: The key findings of this study are:

Partially, there was a significant effect of Return on Equity (ROE), Return on Investment (ROI), and Earnings Per Share (EPS) on stock prices.
Conversely, the current ratio (CR) and inventory turnover did not show a significant effect on stock prices.
In simultaneous testing, the current ratio, return on equity, return on investment, and earnings per share variables jointly affect stock prices.

Q3: What are the implications of this study for investors?

A3: The findings of this study suggest that investors should pay more attention to the company's profitability performance in determining the value of shares rather than only paying attention to inventory liquidity and efficiency. Investors should also consider the current ratio and inventory turnover as important indicators in financial analysis, although they may not show a significant direct effect on stock prices.

Q4: What are the implications of this study for companies in the textile and garment industry?

A4: The findings of this study suggest that companies in the textile and garment industry should focus on increasing profitability to attract more investors and increase the value of their shares. Companies should improve their return on equity (ROE), return on investment (ROI), and earnings per share (EPS) to increase investor confidence and encourage stock prices to rise.

Q5: What are the limitations of this study?

A5: This study has several limitations, including:

The study only analyzed textile and garment companies listed on the Indonesia Stock Exchange, which may not be representative of the entire textile and garment industry.
The study used secondary data, which may not be up-to-date or accurate.
The study only analyzed the effect of liquidity, profitability, and inventory turnover on stock prices, which may not be the only factors affecting stock prices.

Q6: What are the future research directions?

A6: Future research directions include:

Analyzing the effect of other factors on stock prices, such as market sentiment, economic conditions, and industry trends.
Conducting a study on the textile and garment industry in other countries, to compare the findings with those of this study.
Analyzing the effect of liquidity, profitability, and inventory turnover on stock prices in other industries, to compare the findings with those of this study.

Q7: What are the practical implications of this study?

A7: The practical implications of this study are:

Investors should pay more attention to the company's profitability performance in determining the value of shares.
Companies in the textile and garment industry should focus on increasing profitability to attract more investors and increase the value of their shares.
Companies should improve their return on equity (ROE), return on investment (ROI), and earnings per share (EPS) to increase investor confidence and encourage stock prices to rise.

Q8: What are the theoretical implications of this study?

A8: The theoretical implications of this study are:

The study provides evidence that profitability performance has a greater influence on stock prices compared to liquidity and inventory management efficiency.
The study suggests that investors and companies should focus on improving profitability performance to increase investor confidence and encourage stock prices to rise.

Q9: What are the policy implications of this study?

A9: The policy implications of this study are:

Policymakers should consider the importance of profitability performance in determining stock prices.
Policymakers should encourage companies in the textile and garment industry to focus on improving profitability performance to increase investor confidence and encourage stock prices to rise.

Q10: What are the future research directions?

A10: Future research directions include:

Analyzing the effect of other factors on stock prices, such as market sentiment, economic conditions, and industry trends.
Conducting a study on the textile and garment industry in other countries, to compare the findings with those of this study.
Analyzing the effect of liquidity, profitability, and inventory turnover on stock prices in other industries, to compare the findings with those of this study.