CHAPTER I

INTRODUCTION

1.1

Research Background
Stock prices change every day as a result of market forces.

By this we mean that share prices change because of supply and

demand. If more people want to buy a stock (demand) than sell it
(supply), then the price moves up. Conversely, if more people
wanted to sell a stock than buy it, there would be greater supply
than demand, and the price would fall . According to Gitman and
Zutter (2015), For public companies, value at any time is
reflected in the stock price. Therefore, management should act
only on those opportunities that are expected to create value for
owners by increasing the stock price.
Investors will look at the stock price and see whether it is
worth to buy or not, whether it is too expensive or too cheap,
whether it is too fluctuate or even too stable. According to
Efficient Market Hypothesis, stock prices fully reflect all publicly
available

information.

Of

course,

significant

amount

of

information about every company is not publicly available. Thus,

stock prices may not accurately reflect all that is known about a
company (Gitman and Zutter, 2015) .
In pursuing the firms goal of maximizing the stock price,
the financial manager must carefully consider the balance of
return and risk associated with each proposal and must
1

undertake only those actions that create value for owners

(Gitman and Zutter, 2015). Investors could expect higher return
from higher risk stock investment and the other way around. The
movement of stock price can be used to do arbitrage and also to
get long-term return by capital gain and dividend. Harper (2008)
said there are three forces that move stock price: fundamental
factors, technical factors, and market sentiment.
1. Fundamental factor is information that deals with the
condition of the company, the general condition of industry
of the same kinds, and other factors that may influence the
companys condition, and its prospect in the future. By
looking at the economics of a business, the balance sheet,
the income statement, management, and cash flow,
investors are looking at a companys fundamentals, which
help determine a companys health as well as its growth
prospects. A company with little debt and a lot of cash is
considered to have strong fundamentals.
2. Technical factor reflects the condition of stock market, the fluctuation of
rate of exchange, and the volume of transaction. Technical factors include
inflation, economic strength of market, substitutes, demographics, trends,
and liquidity.
3. Market sentiment refers to the psychology of market participants,
individually and collectively. Market sentiment is often subjective, biased,
and obstinate. For example, you can make a solid judgment about a stock's
future growth prospects, and the future may even confirm your projections,

but in the meantime the market may myopically dwell on a single piece of
news that keeps the stock artificially high or low. Market sentiment is
being explored by the relatively new field of behavioral finance. It starts
with the assumption that markets are apparently not efficient much of the
time, and this inefficiency can be explained by psychology and other social
sciences.
This research aimed to prove that fundamental factors really influenced the
stock price, and to determine which variable inside fundamental factors that are
influencing. Previous researches conducted by other researchers have difference
or gap in the result of variables that were influencing stock price. It could be
summarized as shown on Table 1.1.
Table 1.1
Result Difference of Previous Researches
No.
1

Independent Variables
Current Ratio

Return On Equity

Earnings Per Share

Sales Growth

Researchers Name
Deitiana (2011)
Maskun (2012)
Deitiana (2011)
Maskun (2012)
Talamati &

Result
No Influence
No Influence
Positively Influence
No Influence
No Influence

Pangemanan (2015)
Priatinah & Kusuma

Positively Influence

(2012)
Maskun (2012)
Talamati &

Positively Influence
Positively Influence

Pangemanan (2015)
Deitiana (2011)

No Influence

Therefore, based on those interesting phenomenon, it could be stated that

the variable which influence stock price is still blurry, due to difference result on
different researches. This research could fit up what has been done before.
On June 2015, Ministry of Industrial released a book titled Rencana Induk
Pembangunan Industri Nasional 2015 2035 (National Industrial Development
Planning 2015 2035). The purpose of RIPIN is to guide the government in
planning and building the industry. Basically, this book contains the information
about three groups of priority industry, which are mainstay industry, supporting
industry, and the upstream industry.
Mainstay industry is the priority industry that will be prime mover of the
economic in the future. In addition to considering the potential of natural
resources as a source of comparative advantage, the mainstay industry has a
competitive edge rely on skilled human resources, as well as science and
technology.
Supporting industry is the priority industry that will take a role as an
enabler to the development of mainstay industry effectively, efficiently, and
comprehensively. While the upstream industry is the priority industry as a base of
manufacturing that resulting the raw material which can be accompanied by
improvement of certain specifications used for the downstream industry. Based on
the establishment of those priority industries, then the national industrialization is
set as seen on Table 1.2
Table 1.2
National Industrial Development Planning 2015 2035
MAINSTAY INDUSTRIES

Food

Pharmacy,

Textile,

Automotive

Industries

Cosmetic,

Leather,

Industries

and Medical

Footwear, and

Industries

Various

ICT

Energy
Generator
Industries

Industries
SUPPORTING INDUSTRIES
Capital Goods, Component, Helper Industries
UPSTREAM INDUSTRIES
Agro Upstream Industries
Mineral Mining Upstrean
Oil&Gas, Coal Upstream
Industries

Industries

Source: Rencana Induk Pembangunan Industri Nasional 2015 2035

The focus will be on the mainstay industry which will act as a prime
mover in the future economic. Mainstay industry consists of 6 main industries as
seen on Table 1.2. To determine which industry to be used as an object of the
research, other factor was included as a determinant, which was the Indonesias
export value data. This data is presented on Table 1.3, and Table 1.4.
Table 1.3
Ranking of Industry Export Value
Industries
Group
Palm Oil
Processing
Iron Steel,
Machinery,
and

2010 (US$)

2011 (US$)

2012 (US$)

2013 (US$)

17.253.751.94

23.179.189.21

23.396.998.18

20.660.402.21

13.191.710.37

15.029.612.80

14.684.401.50

15.813.518.29

13.254.016.87

12.446.506.59

12.661.681.50

12.720.312.06

5
9.536.135.712
14.540.361.16

6
9.444.056.919
10.818.624.88

8
8.520.124.647

0
8.066.889.542

9.724.133.106

7.497.549.404

4.577.664.111

6.119.906.261

4.870.521.468

5.083.494.825

5.703.382.618

3.219.558.339

4.505.240.017

4.652.902.475

5.379.821.652

5.554.396.593

5.708.164.342

5.769.378.283

5.517.965.818

5.643.997.372

5.498.591.201

10.840.032.116

2014 (US$)
23.711.550.465

Automotive
Textile

11.205.515.350

Electronics
Rubber

9.254.562.524

Processing
Basic
Chemistry
Food &
Beverages
Pulp&Pape

9.522.622.737

r
Wood
Processing
Cooper
Processing

4.280.345.672

4.474.988.094

4.539.877.317

4.727.650.015

5.202.156.290

6.505.973.111

7.500.962.497

5.049.455.277

4.843.484.653

4.886.370.585

Source:http://www.kemenperin.go.id, Ministry of Industry Official Website

Table 1.4
Sub-Group of Iron Steel, Machinery, and Automotive
Industries

2010 (US$)

2011 (US$)

2012 (US$)

2013 (US$)

2014 (US$)

1.113.850.891

1.549.583.786

2.562.654.154

2.402.421.601

2.927.109.531

1.338.354.974

1.295.419.817

1.688.762.255

1.651.497.891

1.848.473.317

647.454.031

845.894.223

1.778.890.412

1.325.404.121

1.648.328.530

Industry

668.463.904

1.055.875.389

892.610.120

902.433.544

860.279.868

Products
Motor

523.743.414

595.839.203

708.482.243

879.468.839

700.253.072

Sub-Group
Automotive
Vehicles
Automotive
Component
s
Basic
Metal,
Other Iron
Steel
Products
Other

Vehicles

Machinery
Structures
Pipe

210.857.587

374.903.567

427.400.367

580.851.201

691.507.495

Without

456.008.974

441.427.703

592.092.791

640.132.371

462.927.054

363.492.077

468.545.523

476.098.948

417.415.846

433.690.758

s
Ship
Factory

1.082.298.174

379.306.092

499.765.928

641.272.095

395.031.294

Equipment

50.089.551

56.782.775

67.420.333

110.147.756

383.598.133

Shawl
Heavy
Equipment
Component

Machinery

Source: www.kemenperin.go.id, Ministry of Industry Official Website

In terms of export contribution, automotive and components industry
ranked number 2 after palm oil industries which were not part of mainstay
industry. Therefore, based on mainstay industry as stated on RIPIN, and the export
contribution, it could be concluded that the automotive and components industry
were suitable to be the object of the research.
Other reason was the rapid growth of this industry, its contribution to the
economy, and its potential to dominate the ASEAN market. Previous Minister of
Trade, Muhammad Lutfi stated on October 2014, automotive industries for the
last two months had been growing for 110% and will be the top export commodity
of Indonesia. General Director of National Exports Development, Nus Nuzulia
also stated that automotive industries will be the major exports product of
Indonesia, and there were vehicles produced using 60% - 80% local components
already.
Current Ratio is the measurement of company liquidity. It is desirable that
a firm is able to pay its bills, so having enough liquidity for day-to-day operations

is important (Gitman and Zutter, 2015). Based on this, many analysts assume that
investors will pretty much use liquidity measurement to decide their buy-and-sell
of stocks.
Return On Equity, and Earning Per Share are the ratios used to measure
company profitability. When company deliver strong profits, they are more likely
to perform well, so they are more likely to pay rising dividends. So that, demand
for stocks tends to rise and prices increase. Many research conducted resulting
that profitability influence stock price, including the research of Deitiana (2011)
and Maskun (2012).
Sales Growth reflects the degree of investment successfulness in the past
and could be a tool to predict the future growth, sales growth could also be the
indicator of demand and companys competitiveness in the industry (Deitiana,
2011). When the sales increase, investors will assume that the profit of the
company is increasing as well, so it will drive investors to think that the company
is doing better, then they would be happy to buy the stocks even more.
These contradictions interests researcher to conduct similar research using
the 2010-2014 data taken from Indonesia Stock Exchange with the title THE
INFLUENCE OF CURRENT RATIO, RETURN ON EQUITY, EARNING
PER SHARE, AND SALES GROWTH TO THE STOCK PRICE OF
AUTOMOTIVE AND COMPONENT COMPANIES ON INDONESIA
STOCK EXCHANGE PERIOD 2010-2014

1.2

Problem Formulation
What will become the problem in this research are :

1.
2.
3.
4.
5.

Does Current Ratio influence Stock Price?

Does Return On Equity influence Stock Price?
Does Earning Per Share influence Stock Price?
Does Sales Growth influence Stock Price?
Do Current Ratio, Return On Equity, Earning Per Share, and Sales Growth,
simultaneously influence Stock Price

1.3
1.
2.
3.
4.
5.

Research Objectives
The objectives of this research are to analyze:
The influence of Current Ratio on Stock Price
The influence of Return On Equity on Stock Price
The influence of Earning Per Share on Stock Price
The influence of Sales Growth on Stock Price
The simultaneous influence of Current Ratio, Return On Equity, Earning Per
Share, and Sales Growth on Stock Price

1.4
Research Advantages
1. On the behalf of Corporate Managerial
The researcher really hopes that this research result can be used as
measurement and standard for recognizing the stock price movement in the
company. So that, all top managements can take further action regarding
future stock price.
2. On the behalf of Academics
The researcher really hopes that this research result can be used as
measurement and standard in doing similar research in the future.
3. On the behalf of The Public
The researcher really hopes that this research can be used as a
consideration of companies financial health, helping public investors to
predict the future stock price, and to help them decide whether they should
invest to that particular company or not.
1.5

Discussion Systematic

CHAPTER I

INTRODUCTION

10

Elaborates the introduction of the research. It consists of

research background, problem formulation, objectives, and
advantages.

CHAPTER II

THEORITICAL FRAMEWORK AND HYPOTHESIS

FORMLATION
Elaborates the theoretical framework and hypothesis
formulation. It consists of theoretical framework, previous
studies, research model, and hypothesis formulation.

CHAPTER III

RESEARCH METHODOLOGY
Elaborates the research methodology. It consists of research
design, research objects, operational definition of variables
and its measurements, data collection techniques, quality
test of data, data analysis methods, hypothesis test.

CHAPTER IV

RESULTS AND ANALYSIS

Elaborates the empirical results and analysis. It consists of
sample data of automotive and component companies listed
on IDX period 2010 to 2014, data analysis method,
hypothesis testing results and analysis.

CHAPTER V

CONCLUSION,
RECOMMENDATION

LIMITATION,

AND

11

Elaborates the conclusion and limitation of this research,

and also recommendations for further researches.