1.

Introduction

The company's financial ratio describes the financial condition and performance
of the company. Good company performance helps management to achieve company
goals. Financial ratio analysis can also show company profiles, economic
characteristics, competitive strategies and operations, financial and investment
characteristics. The company's financial ratio in the company's financial statements
can be seen from the income statement, cash flow statement, balance sheet, and
statement of changes in equity.

The company's financial statements are very beneficial for the community,
investors, shareholders, and management in the decision-making process. In this case,
the investor must have a benchmark to find out whether he invests in the company, he
will get a profit or loss. Because the progress of a company depends on the capital
invested by the investor. so, the company must have a good performance to get the
trust of investors to invest in the company. Financial performance can be measured
using financial ratios that have been set by the company, because financial ratios are
very influential on the level of increase in stock returns.

According to Arista (2012), stock returns are the selling price of shares above the
purchase price. The higher the selling price of shares above the purchase price, the
higher the return obtained by investors. If an investor wants a high return then he must
be willing to bear a higher risk, and vice versa if he wants a low return, the risk to be
borne is also low.

From the research that has been done before, it turns out that there are still
differences in the results of research on the company's financial performance that
affect stock returns in Indonesia. Because not all financial performance has a positive
influence on stock returns. In this study researchers only use financial statement
analysis that can measure the company's financial performance with finance which
consists of liquidity ratios, solvability ratios, activity ratios, profitability ratios and
market ratios to see the financial conditions that occur in the company against stock
returns.
2. Research Question

The research questions for this review were:

1. What is the purpose of analyzing financial statements by investor to make

decision ?

2. What is the effect of the Profitability Ratio on the stock returns of manufacturing
companies in the Indonesia Stock Exchange?

3. What is the effect of the Liquidity Ratio on the stock returns of manufacturing
companies in the Indonesia Stock Exchange?

4. What is the effect of the Activity Ratio on the stock returns of manufacturing
companies in the Indonesia Stock Exchange?

5. What is the effect of Solvability ratio on the stock returns of manufacturing

companies in the Indonesia Stock Exchange?

3.Literature Survey

3.1 The concept of financial statement analysis

According to Mohammed Nuhu (2014:106) “financial statement analysis can be

defined as the breaking down, interpretation, and translation of data contained in
financial statements to provide information and show important relationships among
the items of financial statements and drawing conclusion about the past performance,
current financial position, and future potentials of a business”. the financial statement
on the company describes the company's financial performance and position and can
be used as a tool for evaluating the performance of managers in increasing
shareholder value. Financial statement analysis helps investors to know the
profitability and return on investment in a business.

3.2 investment
 Is a capital for the production process for a company for a long time. Investment
is needed to support economic development in Indonesia. The purpose of the
investment is to get a steady income in each period, such as royalties, interest, rent,
and others whose income can be used for living needs.

3.3 Shares
Stock can be used as a long-term savings. short-term stock movements such as 1 or 2
years, giving a fairly high increase and decrease. The capital gain will be given by the
company to the shareholders as a result of the difference between the purchase price
and the selling price of the stock. The better the company's performance, the higher
the stock price. the share profits can be obtained within one hour, one day, one month,
one year or even several years. It all depends on when we buy, what stock we will buy,
and when we will sell it.

3.4 Assessing Company Performance with Financial Ratios

Conducting financial ratio analysis is important, investors must understand and

analyze the company's financial ratios.To do a ratio analysis, you must have a
complete and accurate financial report. Financial ratios help you measure company
success. to analyze the financial ratio divided into 4 as follows :

1. Profitability Ratio

Profitability ratios show the ability of companies to make profits.

 Gross profit margin

Shows the company's ability to generate gross profit that can be achieved from each
sale. Gross profit margin is a comparison of gross profit and sales in the same period.
The greater the calculation results indicate the better the financial condition of the
company.

Gross profit margin = gross profit / net sales

 Profit margin

Profit margin shows the profitability generated from income

profit margin = net income/ net sales

 Asset returns

Asset returns show efficiency where management has used available resources to
generate income.

Return on total asset = net income/ average total asset

 Return on common equity

calculate the percentage rate of return obtained from ordinary shareholder investments

Return on common equity = earning available to common stockholder/ average

storageholders equity

2. Liquidity Ratio

The liquidity ratio shows the ability of a company to meet its short-term financial
obligations, such as paying salaries, maturing debts, operating costs, and others.

 Current Ratio

This ratio shows the comparison of current assets with current liabilities. The higher it
means the better the liquidity.

Current ratio = current asset / current liabilites

 Quick ratio

shows the comparison between (cash + short-term securities + accounts receivable)

and current liabilities.

Quickratio=cash+marketablesecurities+accountreceivable/current asset

3. Activity Ratio

Measure the level of use of assets or company assets

 The accounts receivable turnover ratio shows the amount of receivables of a

company collected during the year.

Accountsreceivableturnover=net credit sales/averageaccount receivables

 Total Asset Turnover

This ratio is used to calculate the effectiveness of total asset use. The higher the
turnover, the more effective the company will be in utilizing total assets for its sales.

Total asset turnover = net sales / average total assets

4. Leverage Ratio

indicates the company's ability to fulfill all its obligations both long and short term if
the company is liquidated.

 Debt Ratio.shows a percentage analysis of the total value obtained from creditors.

Debt ratio = total liabilities / total assets

 The debt Equity ratio is a significant easure of solvency since a high degree of
debt in the capital structure may make it difficult for the company

Debt to equity ratio = total liabilities / stockholders equity

4 financial ratios are used to explain the strengths and weaknesses of the company's
financial condition and for predict stock returns in the capital market.

The effect of the company's financial ratios on stock returns

All investment decisions, including stock investments are the decision to invest a
number of funds in the hope of obtaining profits or returns in the future, these benefits
can take the form of cash receipts or an increase in investment value.

3.5 The concept of Stock Return (Y)

stock returns are the results obtained from investment. Returns for shareholders can
be in the form of cash dividends or changes in stock prices.Stock return is one of the
factors that motivate investors to invest and is also a reward for the courage of
investors to bear the risk of investing.
Return = (Pt-Pt-1) / Pt-1
Where is Pt is the period t stock price
Pt-1 is the price of the previous period (t-1).

3.6 Statistical t-test

The t-statistic test is the influence of an independent variable on the dependent
variable.
Ho: bi = 0; means that there is no significant positive effect between the independent
variables on the dependent variable partially (individually).
Ha: bi ≠ 0; means that there is a significant positive effect between the independent
variables on the dependent variable partially (individually).

Imam Ghozali (2006: 88-89) suggests how to do the t test, namely:

a. If the number of degrees of freedom (df) is> 20 and the confidence level is 5%,
then Ho which states bi = 0 can be rejected if the value of t> 2. Independent variables
affect the dependent variable.

Hypothesis 1 Current Ratio (CR)

shows the value of t arithmetic of 1.147 with a significance level of 0.257. While
the value of t table for one-way test with df = n-k-1 with α = 0.05 obtained for 1.673.
Thus it can be concluded that t count (1.147) <t table (1.673). This means that the
alternative hypothesis (Ha) is rejected, meaning that there is no significant influence
between Current Ratio and stock returns.
Hypothesis Testing 2 Debt to Equity Ratio
shows the value of t count of 0.540 with a significance level of 0.591. While the value
of t table for one-way test with df = n-k-1 at α = 0.05 obtained for 1.673. Thus it can
be concluded that t count (0.540) <t table (1.673). This means that the alternative
hypothesis (Ha) is rejected, with the meaning that there is no significant influence
between Debt to Equity Ratio and stock returns.
Hypothesis Testing 3 Total Assets
Turnover shows the value of t count of -0.505 with a significance level of 0.616.
While the value of t table for one-way test with df = n-k-1 at α = 0.05 obtained for
1.673. Thus it can be concluded that t count (-0.505) <t table (1,673). This means that
the alternative hypothesis is rejected, meaning that there is no significant influence
between Total Assets Turnover (TAT) on stock returns.
Hypothesis Testing 4 Return On Assets (ROA)
shows the value of t count of 2.578 with a significance level of 0.013. While the
tebel t value for the one-way test with df = n-k-1 at α = 0.05 obtained for 1.673. Thus
it can be concluded that t count (2,578)> t table (1,673). This means that the
alternative hypothesis (Ha) is accepted, which means that there is a significant
influence between Return On Assets (ROA) and stock returns.
Test Hypothesis 5 Price Earning Ratio
show the value of t count of 3.559 with a significance level of 0.001. While the value
of t table for one-way test with df = n-k-1 at α = 0.005 obtained for 1.673. Thus it can
be concluded that t count (3,559)> t table (1,673). This means that the alternative
hypothesis (Ha) is accepted, which means that there is a significant effect between
Price Earning Ratio (PER) on stock returns.

4.Research Design

The source of information in this article comes from journals, financial management
books, economic finance articles, and other online information.if we want to prove the
influence of corporate financial ratios on stock returns, we must analyze the
company's ratio by attaching the financial statement to the company, and then make a
decision .
5.List of Literature

Nuhu,M (2014). Role of Ratio Analysis in Business Decisions: A Case Study NBC
Maiduguri Plant , Journal of Educational and Social Research , Vol. 4 No.5 ,
105-118.

Arista, Desy; dan Astohar. 2012. Analisis Faktor – Faktor yang Mempengaruhi
Return Saham (Studi Kasus pada Perusahaan Manufaktur yang Go Public di
BEI Periode Tahun 2005 - 2009). Jurnal Ilmu Manajemen dan Akuntansi
Terapan, Vol.3, No.1.

O,Carlos. , Noguera,M.,White,S. (2015). Financial ratios used by equity analysts in

Mexicoand stock returns,Razones financieras usadas por analistas del mercado de
capitalen Méxicoyren dimi ento de acciones,578-579 ,

http://www.revistas.unam.mx/index.php/rca/

Imam Ghozali. 2006. Aplikasi Analisis Multivariate Dengan Program SPSS.

Penerbit Universitas Diponegoro. Semarang.

Kanapickien, R., Grundien,I. (2015).The Model of Fraud Detection in Financial

Statements by Means of Financial Ratios,Procedia-Social and Behavioral Sciences ,
Volume 213, Pages 321-327 , https://doi.org/1
0.1016/j.sbspro.2015.11.545