The Effect of Financial Ratios on Stock Prices with Trading Volume as Moderation of Property and Real Estate Companies Listed on the Indonesia Stock Exchange
Introduction
In the world of investment, one of the most critical factors that investors consider is the company's share price. Many investors are eager to know what affects the change in stock prices. This study aims to analyze the effect of financial ratios, such as profitability, liquidity ratio, and leverage ratio, on the share price of property and real estate companies listed on the Indonesia Stock Exchange (IDX). In addition, this research also explores the role of stock trading volume as a moderation variable in this relationship.
Research Background
The population of this study included 45 property and real estate companies listed on the Indonesia Stock Exchange in the period 2009 to 2013. In taking sampling, the purposive sampling method was applied, and of the 45 companies, there were 24 companies that met the criteria as research samples, with total observations 120 samples. To test the proposed hypothesis, multiple regression analysis (MRA) is used.
The Importance of Financial Ratios in Stock Price Determination
Financial ratios are a crucial tool for investors and analysts to evaluate a company's financial performance and make informed decisions. These ratios provide insights into a company's profitability, liquidity, and leverage, which are essential factors in determining its stock price. In this study, we examine the effect of financial ratios on stock prices, with a focus on property and real estate companies listed on the IDX.
The Role of Profitability Ratio in Stock Price Determination
Profitability ratio is a measure of a company's ability to generate earnings from its sales. It is calculated by dividing net income by sales. A higher profitability ratio indicates that a company is able to generate more earnings from its sales, which can lead to an increase in stock price. Our study finds that the profitability ratio has a positive and significant effect on stock prices. This indicates that the higher the profitability of a company, the higher the stock price that can be achieved.
The Impact of Liquidity Ratio on Stock Price Determination
Liquidity ratio is a measure of a company's ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities. A higher liquidity ratio indicates that a company has more liquid assets to meet its short-term obligations, which can lead to an increase in stock price. However, our study finds that the liquidity ratio has a negative and significant effect on stock prices. This shows that if the company's liquidity increases, this might not be accompanied by a significant increase in stock prices, it can even reduce it.
The Effect of Leverage Ratio on Stock Price Determination
Leverage ratio is a measure of a company's debt-to-equity ratio. It is calculated by dividing total debt by total equity. A higher leverage ratio indicates that a company has more debt, which can lead to an increase in stock price. However, our study finds that the leverage ratio also has a negative and significant influence on stock prices. That is, companies that have high debt tend to decrease in stock prices.
The Moderating Role of Stock Trading Volume
Stock trading volume is a measure of the number of shares traded in a given period. It is an indicator of market activity and can influence stock prices. Our study examines the moderating role of stock trading volume in the relationship between financial ratios and stock prices. However, we find that the volume of trade could not function as a significant moderation. This is tested through the residual test method, which shows that the trading volume is unable to strengthen or weaken the relationship between profitability, liquidity ratio, and leverage ratio to stock prices.
Conclusion
From the analysis that has been carried out, it can be concluded that the financial ratio has a significant impact on the share price of property companies and real estate listed on the Indonesia Stock Exchange. Investors should pay attention to these ratios in their investment decision making. On the other hand, the volume of stock trading does not have a significant role in moderating the relationship between financial ratios and stock prices, shows that other factors may be more influential in this context.
Implications of the Study
This study provides a deeper insight into the factors that affect stock prices and can be a reference for investors and stakeholders in making more informational and strategic decisions. The findings of this study can help investors to make more informed decisions about their investments in property and real estate companies listed on the IDX. Additionally, the study highlights the importance of financial ratios in stock price determination and the need for investors to pay attention to these ratios in their investment decision making.
Limitations of the Study
This study has some limitations that should be noted. Firstly, the study only examines the effect of financial ratios on stock prices in property and real estate companies listed on the IDX. Secondly, the study only uses data from 2009 to 2013, which may not be representative of the current market conditions. Finally, the study only examines the moderating role of stock trading volume and does not consider other potential moderating variables.
Future Research Directions
This study provides a foundation for future research in this area. Future studies can examine the effect of financial ratios on stock prices in other industries or markets. Additionally, future studies can examine the moderating role of other variables, such as market sentiment or economic conditions, in the relationship between financial ratios and stock prices.Frequently Asked Questions (FAQs) about the Effect of Financial Ratios on Stock Prices with Trading Volume as Moderation of Property and Real Estate Companies Listed on the Indonesia Stock Exchange
Q: What are financial ratios, and how do they affect stock prices?
A: Financial ratios are a set of metrics that help investors and analysts evaluate a company's financial performance. They provide insights into a company's profitability, liquidity, and leverage, which are essential factors in determining its stock price. In this study, we examine the effect of financial ratios on stock prices, with a focus on property and real estate companies listed on the IDX.
Q: What are the different types of financial ratios, and how do they affect stock prices?
A: There are several types of financial ratios, including profitability ratio, liquidity ratio, and leverage ratio. Profitability ratio measures a company's ability to generate earnings from its sales. Liquidity ratio measures a company's ability to meet its short-term obligations. Leverage ratio measures a company's debt-to-equity ratio. Our study finds that profitability ratio has a positive and significant effect on stock prices, while liquidity ratio and leverage ratio have negative and significant effects on stock prices.
Q: What is the role of stock trading volume in the relationship between financial ratios and stock prices?
A: Stock trading volume is a measure of the number of shares traded in a given period. It is an indicator of market activity and can influence stock prices. Our study examines the moderating role of stock trading volume in the relationship between financial ratios and stock prices. However, we find that the volume of trade could not function as a significant moderation.
Q: What are the implications of this study for investors and stakeholders?
A: This study provides a deeper insight into the factors that affect stock prices and can be a reference for investors and stakeholders in making more informational and strategic decisions. The findings of this study can help investors to make more informed decisions about their investments in property and real estate companies listed on the IDX.
Q: What are the limitations of this study, and how can future research build on this study?
A: This study has some limitations that should be noted. Firstly, the study only examines the effect of financial ratios on stock prices in property and real estate companies listed on the IDX. Secondly, the study only uses data from 2009 to 2013, which may not be representative of the current market conditions. Finally, the study only examines the moderating role of stock trading volume and does not consider other potential moderating variables. Future studies can examine the effect of financial ratios on stock prices in other industries or markets, and examine the moderating role of other variables, such as market sentiment or economic conditions.
Q: What are the practical implications of this study for investors and stakeholders?
A: The findings of this study can help investors to make more informed decisions about their investments in property and real estate companies listed on the IDX. Investors should pay attention to financial ratios, such as profitability, liquidity, and leverage, when making investment decisions. Additionally, investors should consider the moderating role of stock trading volume in the relationship between financial ratios and stock prices.
Q: What are the future research directions for this study?
A: This study provides a foundation for future research in this area. Future studies can examine the effect of financial ratios on stock prices in other industries or markets. Additionally, future studies can examine the moderating role of other variables, such as market sentiment or economic conditions, in the relationship between financial ratios and stock prices.
Q: What are the key takeaways from this study?
A: The key takeaways from this study are:
Financial ratios, such as profitability, liquidity, and leverage, have a significant impact on stock prices.
Stock trading volume does not have a significant moderating effect on the relationship between financial ratios and stock prices.
Investors should pay attention to financial ratios when making investment decisions.
The findings of this study can help investors to make more informed decisions about their investments in property and real estate companies listed on the IDX.