Analysis on the Influence of Return on Equity, Debt to Equity Ratio, Price to Book Value, and Current Ratio Towards Stock Return

ANALYSIS ON THE INFLUENCE OF RETURN ON EQUITY, DEBT TO EQUITY RATIO, PRICE TO BOOK VALUE, AND CURRENT RATIO TOWARDS STOCK RETURN

(Empirical Study of Pharmaceutical Companies Listed in Indonesia Stock Exchange Year 2009-2012)

SKRIPSI

HARENI AGUSTINA 008201000096

Presented to The Faculty of Business, President University In partial fulfillment of the requirements for Bachelor Degree in Economics, Major in Accounting

President University Cikarang Baru – Bekasi Indonesia 2014

PANEL OF EXAMINERS APPROVAL SHEET

Herewith, the Panel of Examiners declares that the skripsi “ANALYSIS ON THE INFLUENCE OF RETURN ON EQUITY, DEBT TO EQUITY RATIO, PRICE TO BOOK VALUE, AND CURRENT RATIO TOWARD STOCK RETURN (Empirical Study of Pharmaceutical Companies Listed in Indonesia Stock Exchange Year 2009-2012)” submitted by Hareni Agustina, Accounting Study Program, Faculty of Business, has been assessed and proved to pass the Oral Examination on March 14th, 2014.

Chairman – Panel of Examiners

Dr. Sumarno Zain, SE, Ak., MBA

Examiner I

Drs. Gatot Imam Nugroho, Ak.,MBA

Examiner II

Drs. H. Umar Subandijo.,MBA

SKRIPSI ADVISOR RECOMMENDATION LETTER

This Skripsi entitled “ANALYSIS ON THE INFLUENCE OF RETURN ON

EQUITY, DEBT TO EQUITY RATIO, PRICE TO BOOK VALUE, AND

CURRENT RATIO TOWARD STOCK RETURN (Empirical Study of

Pharmaceutical Companies Listed in Indonesia Stock Exchange Year 2009-

2012)” prepared and submitted by Hareni Agustina in partial fulfillment of the requirements for Bachelor of Science in the Faculty of Business, has been reviewed and found to have satisfied the requirement for a skripsi fit to be examined. I therefore recommend this skripsi for Oral Defense.

Cikarang, Indonesia, December 19th, 2013

Acknowledge, Skripsi Advisor,

Dr. Sumarno Zain, SE, Ak., MBA Dr. Sumarno Zain, SE, Ak., MBA Head of Accounting Study Program Skripsi Advisor Ak.

iii

DECLARATION OF ORIGINALITY

I hereby declare that this skripsi, entitled “ANALYSIS ON THE INFLUENCE

OF RETURN ON EQUITY, DEBT TO EQUITY RATIO, PRICE TO

BOOK VALUE, AND CURRENT RATIO TOWARD STOCK RETURN

(Empirical Study of Pharmaceutical Companies Listed in Indonesia Stock

Exchange Year 2009-2012)” is originally written by myself based on my own research and has never been used for any other purpose before. I, therefore, request for Oral Defense of the skripsi.

Cikarang, Indonesia, December 19th, 2013

Researcher,

Hareni Agustina 008201000096

ANALYSIS ON THE INFLUENCE OF RETURN ON EQUITY, DEBT TO EQUITY RATIO, PRICE TO BOOK VALUE, AND CURRENT RATIO TOWARDS STOCK RETURN (Empirical Study of Pharmaceutical Companies Listed in Indonesia Stock Exchange Year 2009-2012)

ABSTRACT

This research performed in order to test the Influence of Return on Equity (ROE), Debt to Equity Ratio (DER), Price to Book Value (PBV, and Current Ratio (CR) Towards Stock Return in Pharmaceuticals Company Period 2009-2012. Sample that used in this research have some criteria as follows: (1) Listed in Indonesia Stock Exchange period 2009-2012, (2) Have a complete financial statement data during the years 2009 until 2012, (3) Not delisting in period 2009-2012. Data that need in this research taken from Indonesia Capital Market Directory (ICMD) 2009-2012 was acquired 9 sample of company. Data analysis with multiple regressions. Hypothesis test used T-Test and F-Test with significant level of 5%. Based on the result of this research Return on Equity (ROE), Debt to Equity Ratio (DER) and Current Ratio (CR) has significant influence to stock return. Only Price to Book Value (PBV) has no significant influence to stock return.

Keywords: Stock Return, Return on Equity (ROE), Debt to Equity Ratio (DER), Price to Book Value (PBV), and Current Ratio (CR).

ACKNOWLEDGEMENT

First of all the researcher would like to thank to my Greatest God Jesus Christ through his blessing and guidance the researcher could finish this skripsi entitled “Analysis on the Influence of Return on Equity (ROE), Debt to Equity Ratio (DER), Price to Book Value (PBV), and Current Ratio (CR) in Pharmaceutical Company Period 2009 – 2012”.

The researcher would like to thank to other people who give guidance, encouragement, support and pray until this thesis done. They are: 1. Researcher’s beloved parents who always giving prayer and support from the beginning of my study in President University until finish. 2. Dr. Sumarno Zain, SE, AK., MBA as the researcher’s advisor who always giving advices, ideas, and as a problem solver. 3. To all lecturer who taught me from the beginning of the study in President University until finish. 4. Researcher’s beloved family aunty, uncle, cousins, and niece who always support to finish my skripsi. 5. Researcher’s teammate Santi, Fina, and Stella who giving supports, ideas, and cheers me up. To researcher’s friends Ellen, Livi, Sinta, monica and Erlin who always accompany to relaxing my mind. Without them my life would be so lonely. 6. All parties who cannot mention one by one that has helped completion this skripsi.

Thank you so much for all of you, without them the researcher could not finished this skripsi and having a bachelor degree. God Bless you all.

TABLE OF CONTENTS

PANEL OF EXAMINERS APPROVAL SHEET ...... ii

THESIS ADVISOR RECOMMENDATION LETTER ...... iii

DECLARATION OF ORIGINALITY ...... iv

ABSTRACT ...... v

ACKNOWLEDGEMENT ...... vi

CHAPTER I - INTRODUCTION ...... 1

I.1. Research Background ...... 1

I.2. Problem Identification and Statement ...... 7

I.3. Research Scope and Limitation ...... 8

I.4. Research Objectives ...... 8

I.5. Research Benefits ...... 9

CHAPTER II - LITERATURE REVIEW ...... 10

II.1. Theoretical Review ...... 10

II.1.1. Capital Market ...... 10

II.1.2. Investment Theory ...... 14

II.1.3. Stock ...... 14

II.1.4. Stock Price ...... 16

II.1.5. Stock Return ...... 18

II.1.6. Profitability Ratio ...... 19

vii

II.1.7. Leverage Ratio ...... 20

II.1.8. Market Ratio ...... 21

II.1.9. Liquidity Ratio ...... 23

II.1.10. Relationship between Return on Equity to Stock Return ...... 23

II.1.11. Relationship between Debt to Equity Ratio to Stock Return ...... 24

II.1.12. Relationship between Price to Book Value to Stock Return ...... 24

II.1.13. Relationship between Current Ratio to Stock Return ...... 24

II.2. Previous Research ...... 25

II.3. Theoretical Framework ...... 28

II.4. Hypothesis ...... 31

CHAPTER III - RESEARCH METHODOLOGY ...... 33

III.1. Research Method ...... 33

III.2. Types and Sources of Data ...... 33

III.3. Sampling Design ...... 34

III.4. Research Variable ...... 36

III.5. Data Analysis Technique ...... 38

III.5.1. Descriptive Statistics ...... 38

III.5.2. Classical Assumptions Test ...... 39

III.5.3. Multiple Regression Analysis ...... 41

III.5.4. Hypothesis Test ...... 42

viii

CHAPTER IV - DATA ANALYSIS AND RESULT INTERPRETATION . 45

IV.1. Object Statistical Description ...... 45

IV.1.1. Statistics Descriptive of Research Variable ...... 45

IV.2. Classical Assumption Test ...... 47

IV.2.1. Normality Test Data ...... 47

IV.2.2. Multicollinearity Test ...... 50

IV.2.3. Autocorrelation Test ...... 51

IV.2.4. Heteroscedasticity Test ...... 52

IV.3. Multiple Regression Analysis ...... 53

IV.4. Hypothesis Test ...... 54

IV.4.1. Coefficient of Determination (R-Square) ...... 54

IV.4.2. F Test (F Regression) ...... 55

IV.4.3. Partial Regression Coefficient Test (t-Test) ...... 56

IV.5. Interpretation of Results ...... 57

CHAPTER V - CONCLUSION AND RECOMMENDATION ...... 63

V.1. Conclusion ...... 63

V.2. Recommendation ...... 65

REFERENCES ...... 67

APPENDICES ...... 70

LIST OF FIGURES

Figure II.2 Theoretical Framework ...... 29

Figure III.3 Skewness ...... 33

Figure IV.2 Histogram ...... 48

Figure IV.3 P-Plot ...... 49

Figure IV.7 Scatterplot ...... 52

LIST OF TABLES

Table II.1 Previous Research ...... 27

Table III.1 Sample of Companies ...... 35

Table III.2 Definition of Variables ...... 38

Table IV.1 Descriptive Statistics ...... 45

Table IV.4 Skewness and Kurtosis ...... 50

Table IV.5 Multicollinearity Test ...... 50

Table IV.6 Autocorrelation Test ...... 51

Table IV.8 Multiple Regression Analysis ...... 53

Table IV.9 R-Square ...... 54

Table IV.10 F-Test ...... 55

Table IV.11 T-Test ...... 56

CHAPTER I

INTRODUCTION

I.1. Research Background

In order to expand the business, the company requires additional capital.

Additional capital requirement can be obtained in several ways, such as debt or issuance the new shares. The stock market is a place for companies to raise funds to finance directly serves the company's activities by offering shares to the public on the stock exchange which is often referred to go public.

The stock market is an activity related to the public offering and trading of securities, public companies relating to the issuance of securities, and the institutions and professions related to securities. Capital markets provide a variety of alternatives for investors than other investment alternatives, such as: saving money in the bank, buy gold, insurance, land and buildings, and so on. Capital

Markets acted as a link. Capital Markets acted as a link between investors and companies or government institutions through long-term trade instruments such as bonds, stocks, and other. The function of capital markets is to increasing and connecting the flow of long term funds to "market criteria" that will efficiently support real growth in the economy as a whole (Lloyd, 1976).

The capital market is the market of various financial instruments (securities) that can be traded long term , either in the form of debt (bonds) and equity (shares) issued by the government or private companies. Basically the capital market

1 functions as a vehicle for democratization of share ownership as indicated by the increasing number of institutions and individuals who own shares of publicly listed companies. (Husnan, 1994).

As mentioned earlier, the capital market has an important role in the mobilization of funds to support national development. Access funds from the capital market have attracted many national and joint venture companies to absorb public funds with varying objectives. However, the main objective is to increase labor productivity through business expansion and / or improvement of capital structure to improve the competitiveness of enterprises.

Capital market instruments in Indonesia which allows mobilization of funds is still relatively limited when compared to the world stock exchange. However, the

Indonesian capital market has become an important vehicle beside the bank to provide the necessary funding the business through the sale of shares and bonds.

One function of the capital market is to obtain funds from the public to the various sectors that carry out the investments. The main requirement desired by investors who will to distribute funds through the capital market is feeling safe for investment and rate of return. Capital market trade in some types of securities and have different degrees of risk. Stock is one type of securities that have a high risk.

High risk reflected uncertainty investor returns will be accepted in the future.

Uncertainties the conditions of the return will make the investors to always consider the risk and expected return any securities that are theoretically directly proportional. The higher the expected return, the level of inherent risk is also greater.

The risk of stock investment can be grouped into two, which are: systematic risk and unsystematic risk. Systematic risk is also called market risk as it relates to changes that occur in the market as a whole, this risk occurs due to events beyond the company's activities, such as: inflation risk (Inflation will reduce the purchasing of money so that the rate of return after adjusting for inflation can reduce the results of these investments), Currency exchange rate risk (risk in the investment changes in the value of investments due to foreign currency exchange rate), Rate interest risk (If interest rates rise, the investment return of related interest, such interest rate of Bank Indonesia Certificates (SBI) will ride, this can attract investors to transferring funds into Certificates of Bank Indonesia, so that, many investor will sell shares and stock prices will decrease therefore changes in interest rates will affect the variability of return of an investment). Systematic risk is also called un-diversifiable risk is the uncertainty inherent to the entire market.

Second is unsystematic risk is firm-specific risk because it depends on the condition of micro-firms. Examples of unsystematic risk include: industry risk, operating leverage risk and others. This risk can be minimized by diversifying investments in securities with the formation of many portfolios, unsystematic risk is also called diversifiable risk (Francis, 1991).

In general, public investor who will invest make observations and assessment of the company will be selected to continue to monitor the financial statements of these companies, especially companies that have go public. Based on the financial statements can be found in the company's performance and ability to carry out business activities in utilizing the company's business activities efficiently and

3 effectively as well as outside factors of the company's such as economic, political, financial and others (Rasmin, 2007).

Shares of the go public company as an investment commodity are high-risk investments. Because it is sensitive to the changes that take place, either by the influence that comes from outside or inside the country, changes in political, monetary economics, laws or regulations or changes in the industry and the company that issued the stock itself. So investors who buy the shares need to think based on data from the company.

Financial statement is a formal record of the financial activities of a business, person, or other entity. Information of financial statement is presented in a structured manner and easy to understand. Financial statement typically include basic financial statements, accompanied by a management discussion and analysis:

Statement of financial position also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time.

Statement of comprehensive income reports on a company's income, expenses, and profits in a period of time. A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the processing state. Statement of cash flows reports on a company's cash flow activities; particularly its operating, investing and financing activities.

Accounting information in the form of financial statements will provide many benefits to the user if the report is analyzed further before utilized as a tool for decision-makers of business at the time of trading activity on the stock exchange.

The financial statements should contain valuable information for investors. From the company's financial statements can be obtained information about the

4 performance of the company, cash flow of the company, and other information related to the financial statements.

One of the purposes of investor is to obtain profit from the investment, such as return. Return can be used as a measuring tool to measure the success of the company. Return divided into two which are Realized return and expected return.

Realized return is the return that has been occurred and calculated based on historical data and used for measuring the performance of the company. While the expected return is the return expected by investors in the future. Realized return is indispensable because it is used for measure the corporate performance. This return also useful as a basis for determining the expected return and risk in the future (Jogiyanto H. , 2003). Stock return is the excess of the stock price above the purchase price. The higher the stock price than the purchase price, the higher the return can be obtained by investors. If an investor wants a high return then he should be willing to bear a higher risk, and vice versa if want a lower return the risk will be low.

Investment made by the investor is based on a rational consideration so that various types of information necessary for investment decisions. The information required by investors in the capital market divided into two which are fundamental and technical. Technical information is the conditions of the economy, social and politic in the country. In addition to considering technical information, investors also began to notice the fundamental information acquired from the internal company especially financial condition of the company that perform stock transactions in stock exchanges of Indonesia (Rosyadi, 2002). Through these

5 information can be expected that the investor can obtain significant benefit or to avoid losses to be borne.

For shareholders, the fundamental factors provide clear information and provide analysis of the company's achievements in managing the company. Stock price increase means that the performance of the company increases or good company performance. Improved in management performance can be achieved when the use of capital effectively and efficiently, optimal results will be achieved by using the overall company's capital to invested in assets to generate earnings or profits

(Widoatmodjo, 1996). Fundamental information also provided information related to the condition of a company that is generally indicated in the financial statements of the company's performance. In the financial statements there are some fundamental information are: financial ratios, cash flow, as well as other performance that can measured the stock returns. According to (Ang, 1997), financial ratios grouped into five types based on the scope or objectives to be achieved, namely: liquidity ratios, solvency ratios (leverage), the profitability ratio

(profitability), the ratio of the activity, and the ratio of the market (market ratios).

Ratio analysis is a common way used in the analysis of financial statements, in other words between the other way to analyze the financial statement, the analytical tools that are always used to measure the strength or weakness of a company in the financial sector is financial ratio analysis. The purpose of ratio analysis is to help the financial user to understand what needs to be done by the company, based on available information and limited in nature. Ratio analysis basically not only for the internal company but also external parties (Keown &

Arthur, 2005).

This research used Pharmaceutical Company as the object of case study.

Nowadays, the pharmaceutical industry is still regarded as supporting industry. In

2011, the pharmaceutical industry reached Rp33 trillion. In 2012, the pharmaceutical industry increase until 15%. Increasing in market of pharmaceutical company caused by the products that are always needed by the people even in difficult economic condition. According to (Abdul, 2003), the food industry and pharmaceutical companies also includes into stock companies that is not affected by the movement of macro-economic situation or general business conditions. At recession, the stock prices remain high, because the company is able to provide a high dividend. Company of this stock are usually engaged in industries that the products are truly needed.

Based on the data and statements which have been described above, this research took the title: "Analysis on the Influence of Return on Equity (ROE), Debt to

Equity Ratio (DER), Price to Book Value (PBV), and Current Ratio (CR) towards Stock Return (Empirical Study of Pharmaceutical Companies Listed in Indonesia Stock Exchange Year 2009-2012)".

I.2. Problem Identification and Statement

Based on the background, the researcher tries to formulate the problem as follows: a. Are Return on Equity, Debt to Equity Ratio, Price to Book Value, and

Current Ratio simultaneously gives significant influence on the Stock

return of Pharmaceutical Company listed in Indonesia Stock Exchange?

7 b. Are Return on Equity, Debt to Equity Ratio, Price to Book Value, and

Current Ratio partially gives significant influence on the Stock return of

Pharmaceutical Company listed in Indonesia Stock Exchange?

I.3. Research Scope and Limitation

This research is done with certain limitation. The limitation is given to make the research easier but depth in understanding and analysis so it can give beneficial information to the readers and researcher-self. A limitation in this research is regarding with number of banks that will be chosen as the sample and also the period of time in analyzing the research, which are: a. The period of time that will be used for this research is from 2009-2012. b. The objects that the researcher wants to research are consumer Good

industry that listed in IDX. But the researcher made a limitation for the

sample of this research which is only pharmaceutical companies. c. The researcher also focuses on the some financial ratio that may have

significant influence toward stock return. The financial ratio that researcher

used are: Return on Equity (ROE), Debt to Equity Ratio (DER), Price to

Book Value (PBV), and Current Ratio (CR).

I.4. Research Objectives

The objectives that the researcher wants to achieve from this skripsi are: a. To find out the simultaneously significance of Return on Equity (ROE),

Debt to Equity Ratio (DER), Price to Book Value (PBV), and Current

Ratio (CR) towards stock return.

8 b. To find out the partially significance of Return on Equity (ROE), Debt to

Equity Ratio (DER), Price to Book Value (PBV), and Current Ratio (CR)

towards stock return.

I.5. Research Benefits

This research was conducted with the benefits as follows: a. For Investors and prospective investors

The results of this research can be used for consideration and contribute

ideas for investment decisions making in the shares of companies that

listed on the Indonesia Stock Exchange b. For the Company

The results of this research are expected to be used as one of the basic

considerations in decision making in finance, especially in order to

maximize the performance of the company and for shareholders, so the

company can continue to survive and have a return.

CHAPTER II

LITERATURE REVIEW

II.1. Theoretical Review

II.1.1. Capital Market

In capital markets world, the stock price is essential to be consider by investors and analysis. To gain benefit from the investment, the investor must have the ability to analyze the movement of stock in the future. Before we discuss about the stock price, we will discuss the definition of the capital markets.

Capital market serve as an intermediaries that connecting those who need of funds to the parties that have excess funds (investors). This function shows the important role of capital markets in supporting the economy of a country.

According to the Law No. 8 of 1995 " capital market is a activities that concerned with the public offering and trading of securities, public companies relating to the issuance of securities, as well as institutions and professions related to the securities".

Definition capital market according to the Dictionary of Money Market and

Capital is concrete or abstract markets that bring some parties to offer and require long-term funds, the term is one year and above. Generally the bidder includes insurance companies, pension funds, savings banks, while the applicant are included employers, government and the general public.

A capital market is a financial market for long term funds and a concrete market.

Long-term funds are funds with maturities more than one year. A capital market is a place where securities are traded and called stock exchanges. Definition the stock exchange is an organized system that brings the sellers and buyers of securities either directly or indirectly. Definition of the effect is any securities issued by companies, for example: promissory notes, commercial paper, stocks, bonds, evidence of debt, evidence of rights, and warrant.

Capital markets are different from money market. Money market deals with short- term financial instruments (maturities of less than one year) and an abstract market.

Money market instruments usually consist of different types of short-term securities such as certificates of deposit, commercial paper, Bank Indonesia

Certificates (SBI), and Money Market Securities (SBPU).

According to (Daryono, Sobagiyo, & Prasetyowati, 2003) the capital market plays an important role in a country, basically between the countries has its common with other countries. The role of capital markets in an economy are:

1. Functions of savings (savings function)

Saving is affected by the possibility of loss due to decline in currency

values, inflation, lost risk and others. Savers need to think of other

alternatives that save money in the form of investment. Securities traded in

the stock market gave way cheapest and easily, without the high risk to

invest.

2. Wealth function

The capital market is a way to save wealth in the long term and short term

until the property can be re-used. This way is better because it does not

depreciate property (depreciation) such other assets.

3. Liquidity function

Assets held in securities can be liquidated, e.g. capital with minimal risk

compared to other assets. The process of liquidation of securities relatively

low cost and quickly.

4. Credit function

Capital markets for a country’s economy are a source to develop financing

loans raised to the public. The government encouraged the growth of the

capital market to raise funds more easily and cheapest. Because, the fact

that the loan from the worlds bank has a high interest rate. Meanwhile,

companies that sell bonds from the capital market to raise funds with low

interest rates compared to the interest of the bank.

According to (Sunariyah, 1997) declared the capital market is the place of meeting between demand and supply of long-term financial instruments, generally more than one year. According to (Sunariyah, 1997) the capital market in Indonesia is divided into four types:

1. Primary Market

Primary market is a place for the company for the first time to offer shares

or bonds to the public. Offerings in the primary market are called an Initial

Public Offering (IPO). Primary market occurs when a company sells

securities to public investors for the first time.

2. Secondary Market

Secondary market is a place of transaction between the investor and the

price established by the investor through intermediaries’ effect. After the

securities sold in the primary market, securities can be traded in secondary

market. With the secondary market, investors can trade securities for profit.

In the secondary market, the market price is formed because selling price is

determined by purchase bids and sells bids from investors called the market

order driven market.

3. Third market

The third market means of buying and selling of securities between market

makers and investors. Price of stock or securities in the third market is

formed by the market maker. Investors can choose a market maker (brokers)

that provide the highest price because one type of stock can be sold more

than one market maker.

4. Fourth market

Fourth market means a transaction between the sellers and the buyers

without intermediary effect. Transactions conducted face to face between

the sellers and the buyers. The fourth market only held by large investors

because it can save transaction costs than the secondary market.

II.1.2. Investment Theory

Investment is a term that related to finance and economics. The term is a form of asset accumulation with future benefit. Investing also known as capital investment.

Investment can be interpreted as spending of capital investment or purchase capital goods and the equipment to increase the ability to produce goods and services that available in the economy. Definition of investment according to Ikatan Akuntansi

Indonesia in PSAK is an asset used by the company for the growth of wealth

(accretion of wealth) through distribution investment returns (such as interest, royalties, dividends, and rent), for the appreciation of the value of investment or for company that invest such as the benefits gained through trade relations.

Definition investment according to (Sunariyah, 2003), is invest some capital for one or more assets (usually long-term) and gain benefit in the future. Nowadays, many countries conduct this policy to increase domestics’ investment or foreign capital.

According to (Tandelilin, 2001) investments divided into two parts, namely: real assets and marketable securities or financial assets. Real assets are tangible assets such as: houses, land, gold, and machinery. While the financial assets involving securities such as: deposits, stocks, or a bond which is basically a claim on real assets.

II.1.3. Stock

A stock is a sign of ownership or possession of any person or entity in a corporate.

Form of stock is a piece of paper state that the owner of the paper is the owner of the company that issued the securities. The ownership is determined by how much

14 equity invested in the company (Tjipto & Fakhruddin, 2001). A stock is marketable securities that provide high profit opportunities but also high risk (Iman,

2008). Stock is evidence of ownership or participation marks a person or entity on a particular company. The owner has the right for share in the ownership of the company's percentage shareholding (Siamat, 2000).

Stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation. Additional shares may subsequently be authorized by the existing shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, which is a nominal accounting value used to represent the equity on the balance sheet of the corporation. In other jurisdictions, however, shares of stock may be issued without associated par value.

Shares represent a fraction of ownership in a business. A business may declare different types (classes) of shares, each share having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a legal document that specifies the amount of shares owned by the shareholder, and other specifics of the shares, such as the par value or the class of the shares.

Companies issued two types of shares, which are common stock and preferred stock. Common stock is the real owner of the company. They bear the risk and benefit. At the time of disreputable companies, shareholders do not receive dividends. And vice versa, when the companies in a good condition, shareholders earn greater dividends bonus shares. Shareholders of common stock have rights to voting in the General Meeting of Shareholders (RUPS) and also determine corporate policy. If the company is liquidated, shareholders of common stock will

15 share the remaining net assets after being reduced by preferred stock shareholders.

Besides common stock there is also preferred stock. As the name implies, this preferred stock had the privilege in dividend payments than common stock.

Preferred stock is an equity security which may have any combination of features not possessed by common stock including properties of both equity and a debt instrument, and generally considered a hybrid instrument. Preferred are senior (i.e. higher ranking) to common stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company) and may have priority in the payment of dividends and upon liquidation. Terms of the preferred stock are described in the articles of association.

A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in company. Both private and public traded companies have shareholders. Companies listed at the stock market are expected to strive to enhance shareholder value.

Shareholders are granted special privileges depend on the class of stock, include the right to vote on such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, shareholder's rights to a company's assets are subordinate to the rights of the company's creditors.

II.1.4. Stock Price

Market price is the price of a stock is determined at the time when stock market is in progress based on the demand and supply on the stock. The applicable share

16 price in the stock market is usually determined by the market participants who trade shares. Stock prices automated determined by stock trading on the stock exchange.

Stock price is the prices per share apply in the capital market. Stock prices in the stock market consist of three categories, namely high price, low price and close price. High or low price is the highest price or the lowest price that occur on a single trading day. The closing price is the last price that occurred during the late hours of the exchange (Darmaji & Fakhrudin, 2006). Based on these three categories can be seen that changes in stock prices, as individual investors often have different perceptions, often wrong in the making investment decisions. The impact is investors rush to sell their shares without calculation whether the stock has a good prospect or not.

To be able to know the price of shares or buy shares, the public may obtain information on:

 Bursa Efek Indonesia / IDX (Indonesia Stock Exchange) – Indonesia

 NYSE (New York Stock Exchange) – New York, Amerika Serikat

 Nasdaq (Nasdaq Stock Exchange) – Amerika Serikat

 SEAQ (Stock Exchange Automatic Quotation) – London

 Euronext – Paris, Amsterdam, Brussels

 TSE (Tokyo Stock Exchange) – Tokyo

 SGE (Singapore Exchange) – Singapura

II.1.5. Stock Return

Return is the result obtained from an investment. Stock return is the rate of return that would be earned by investors who invest their funds in the capital market.

Stock returns can be used as an indicator of trading activity in the stock market.

According to (Jogianto, 2000), stock returns can be divided into two, namely realized return and expected return. Realized return is a return that happened and calculated on historical data. Realized return is important in measuring the performance of the company and as a basis for determining future return and risk.

Second is Expected return. Expected return is the return to expect the future and uncertain. When invest, investor faced the uncertainty condition of the return that would be obtained with the risks. The bigger return will be earned from the investment, the greater the risk, so it is said that the expected return have a positive relationship with risk. Higher risk is usually correlated with the opportunity to earn higher returns as well (high risk high return, low risk low return).

Return describe about the results obtained by investors from investing activities that have been done in a period of time. Return consists of the Capital Gain (loss) and Yield (Jogiyanto, 2003). Capital gain (loss) is the difference in profit (loss) from current price with last period price. Yield is the percentage of cash receipts periodically towards investment price of an investment.

In this research the stock return is calculated from the capital gain (loss) without taking into dividend yield. Because basically the dividend value is less than the capital gain so that is not influence if it is not taken into account (Bhattacharya,

1977) which explains that investors prefer capital gains.

Therefore, the concept to calculate the rate of stock return used in this research is realized return. Stock Return mathematically can be formulated as follows

(Jogiyanto H. , 2003):

Where:

SR = Stock return in the period t

P(t) = Closing price of shares in the period t (current year)

P(t-1) = Closing price of shares in the period t-1 (previous year)

II.1.6. Profitability Ratio

The primary goal of companies is to make profits, which is in simplest way can be described as income minus expenses. Profitability ratios help analysts, and investors, to understand how efficiently a company to generates these profits.

Companies need to generate profits; not just to satisfy investors, but also to remain a viable business. If expenses exceed income over a long period of time, the company will likely cease operations. That's why management is always seeking ways to increase profitability. profits, as well as their ratios, can be determined using the company's income statement. This ratio consists of: gross profit margin, net profit margin, operating return on assets, return on assets, return on equity, and operating ratio (Ang, 1997).

Return on equity (ROE) measures the rate of return on the ownership interest

(shareholders' equity) of the common stock owners. It measures a firm's efficiency to generating profits from every unit of shareholders' equity (also known as net

19 assets or assets minus liabilities). “Return on equity is the ratio between the amounts of profit that available to shareholders in the one party with the amount of equity capital to generates the profits on the other party. Or it can be said that the profitability of own capital is the ability of a company with its own capital to work on it to make a profit” (Riyanto, 2001). Return on equity mathematically can be formulated as follow:

ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good.

II.1.7. Leverage Ratio

Leverage ratio is ratio which measures how far the company uses debt. Leverage exists when an investor achieves the right to a return on a capital base that exceeds the investment which the investor has personally contributed to the entity or instrument achieving a return. Leverage ratios measure how leveraged a company is, and a company's rate of leverage (debt load) is often a measure of risk. When the debt ratio is high, for example, the company has a lot of debt that to its assets.

It is carrying a bigger burden in the sense that principal and interest payments take a significant amount of the company's cash flows, and a hiccup in financial performance or a rise in interest rates could result in default. When the debt ratio is low, principal and interest payments do not command such a large portion of the company's cash flow and the company is not as sensitive to changes in business or interest rates from this perspective. However, a low debt ratio may also indicate that the company has an opportunity to use leverage as a means of responsibly

20 growing the business. Leverage ratio has two types, namely debt to equity ratio and time interest earned.

“Debt to equity ratio (DER) describes the ratio of debt and equity in financing and equity capital to show the ability of the company to meet all its obligations” (Sawir,

2001). “Debt to Equity Ratio is the comparison between the ratios of total debt to total equity” (Rangkuti, 2003). Debt to Equity Ratio (DER) mathematically can be formulated as follows:

In general, a high debt to equity ratio indicates that a company may not be able to generate more cash to pay debt obligations. However, low debt to equity ratios may also indicate that a company is not taking advantage of the increasing profits that financial leverage may bring.

II.1.8. Market Ratio

Market ratio is an indicator to measure the price of the stock and used to assist investors in finding stocks that have the potential to gains dividends before making a stock investment. But the market ratios do not have a size ratio that indicates the level of efficiency ratio and cannot reflect overall of the company's financial performance when viewed by the stock price and used by the company management.

Market ratio measures the ratio of the market price towards book value of the company. This ratio gives a clue to investor about the company's performance in

21 the past and prospect in the company (Moeljadi, 2006).When a stock analyst wants to understand how the other company value, they look at market ratios. Market ratio measures all have one factor in common; this ratio evaluating the current market price of a share of common stock versus an indicator of the company's ability to generate profits or assets held by the company. Market ratio is divided into seven types, namely: Dividend Yield (DY), Dividend per Share (DPS),

Earning per Share (EPS), Price Earnings Ratio (PER), Dividend Payout Ratio

(DPR), Book Value per Share (BVS), and Price to Book Value (PBV).

Price to Book Value ratio shows how large the investing value of the company by the owner of the company, the higher this ratio, the greater the additional wealth that enjoyed by the owner of the company (Husnan, 2004). The price book value ratio used to compare a company's current market price to its book value. The calculation can be performed in two ways, but the result should be the same each way. In the first way, the company's market capitalization can be divided by the company's total book value from its balance sheet. The second way is used per- share values, the company's current share price divide by the book value per share

(i.e. its book value divided by the number of outstanding shares) Price to Book

Value (PBV) mathematically can be formulated as follows:

If the market price is under book value, investors can see that the company is not potential enough. When investor pessimist about the company’s stock prospect, so

22 the company sells the stock under book value. Otherwise if investors are optimistic about the stock, so the company sells the stock above book value.

II.1.9. Liquidity Ratio

Liquidity refers to a business's ability to meet its payment obligations, in terms of possessing sufficient liquid assets, and to the assets. Liquidity is not only respect to the overall financial state of the company, but also with regard to its ability to convert certain current assets into cash. An act of exchange of a less liquid asset with a more liquid asset is called liquidation. If the company is able to fulfill the obligations, the company is rated as a liquid. Otherwise, if the company unable to fulfill the obligations, then the company is considered as an illiquid company. This ratio consists of: Current Ratio, Quick Ratio, Cash Ratio, and Turnover Receivable.

Current ratio is the ratio between current assets and current liabilities and is the most common measure used to determine the ability of a company to fulfill its short term obligations.

The current ratio indicates that current assets cover current liabilities. The greater the ratio of current assets and current liabilities so the greater also the company's ability to cover short-term obligations. Current Ratio (CR) mathematically can be formulated as follows:

II.1.10. Relationship between Return on Equity to Stock Return

Return on equity (ROE) measures the rate of return on the ownership interest

(shareholders' equity) of the common stock owners. It measures a firm's efficiency to generating profits from every unit of shareholders' equity (also known as net

23 assets or assets minus liabilities) (Riyanto, 2001). If Return on Equity increase, the performance of the company in generate the profit is good. If the profits of the company increase, so the demands of the stock also increase and the stock price will also increase. If the stock price increases, so stock return will also increase.

II.1.11. Relationship between Debt to Equity Ratio to Stock Return

“Debt to equity ratio (DER) describes the ratio of debt and equity in financing and equity capital to show the ability of the company to meet all its obligations” (Sawir,

2001). Debt to Equity Ratio gives an overview of the company’s ability to pay off all company’s debts when compared to the company’s capital. Increasing in Debt to Equity Ratio could cause the amount of debt is greater than capital. This leads the investors doubt to invest because the risk is too high. So if Debt to Equity Ratio increases, stock return will decrease and vice versa.

II.1.12. Relationship between Price to Book Value to Stock Return

Price to Book Value means the ability of the company in creating the value for shareholders is good. So if the Price to Book Value increases, the stock return will also increase.

II.1.13. Relationship between Current Ratio to Stock Return

The current ratio indicates that current assets cover current liabilities. The greater the ratio of current assets and current liabilities so the greater also the company's

24 ability to cover short-term obligations. High Current Ratio indicates a company’s liquidity is high. A low current ratio is usually indicative of a problem in liquidation. It is advantageous to investors because the company is able to deal with business fluctuations (Gudono, 1999). This will affect the investment gains on stocks. The good company’s ability to pay the debt, the smaller the risk for the investor. So if the current ratio increases, the stock return will also increase.

II.2. Previous Research

1. Yulris Thamrin (2012)

This research analyzed influence Current Ratio (CR) and Debt to Equity Ratio

(DER) towards the stock return (Case manufacturer the Go-Public in Indonesian

Capital Market). The research using regression analysis methods. Sampling was done by a non-probability random sampling with purposive sampling method.

Number of samples taken 22 companies listed on the Jakarta Stock Exchange.

Results of this study indicate that the Debt to Equity Ratio (DER) and Current

Ratio (CR) have positive effect on stock return of manufactured Company

(Thamrin, 2012).

2. Hartati (2010)

Hartati analyzed the effect of return on asset (ROA), debt to equity ratio (DER), earning per share (EPS), and price earnings ratio (PER) towards stock returns company case studies manufactured that listed in the Indonesia Stock Exchange

2005-2008. Data obtained financial and economic statistics published by IDX and used purposive sampling phase then obtained a sample of 48 companies. Multiple linear regression analysis is used as a research technique. The results showed that the return on asset (ROA) and debt to equity (DER) have positive influence to

25 stock return but earnings per share (EPS) and price earnings ratio (PER) have no influence to stock return (Hartati, 2010).

3. Wakti Hasan Nur Huda (2011)

This research analyzed the effect of earning per share (EPS) and price to book value (PBV) towards stock return syariah that listed in the Indonesia Stock

Exchange 2007-2009. Multiple linear regression analysis is used as a research technique. This research use purposive sampling and obtained 11 samples. Data obtained from Indonesian Capital Market Directory (ICMD), IDX Statistic and

IDX Value Line. The results showed that the earning per share (EPS) have no influence to stock return, while the price to book value (PBV) have positive and significant influence to stock return (Huda, 2011).

4. Wahyuni Peni Padan (2012)

This research analyzed the effect of price earnings ratio (PER), price to book value

(PBV), and debt to equity ratio (DER) towards stock return. Object of this research is a manufactured company that listed in Indonesia Stock Exchange 2006-2010.

The research using multiple linear regressions. The results of this study showed price earnings ratio (PER) and debt to equity ratio (DER) have no significant influence towards stock return, while price to book value (PBV) have positive influence towards stock return (Pandan, 2012).

5. Saniman Widodo (2007)

This research examined the influence financial ratios represented by total assets turnover (TATO), inventory turnover (ITO), return on assets (ROA), return on equity (ROE), earning per share (EPS), and price to book value (PBV) towards the

26 stock return. Object of this research is the company that incorporated in Jakarta

Islamic Index (JII) in 2003-2005. This research uses multiple regression analysis and concluded that the variables total assets turnover (TATO), return on assets

(ROA), return on equity (ROE), earnings per share (EPS) have positive influence to stock return, while inventory turnover (ITO) have no significant influence and price to book value (PBV) have negative and significant influence to stock return

(Widodo, 2007).

Table II.1 Previous Researches

No Title Writer Method Result

1. Analyzed the Yulris Regression CR and DER have

influence of Thamrin positive effect to stock

CR and ROE (2012) return

towards stock

return

2. analyzed the Hartati (2010) Multiple ROA and DER have

effect of ROE, Linear positive influence and

DER, EPS and Regression EPS and PER have

PER on stock negative influence

returns

3. analyzed the Wakti Hasan Multiple EPS have no influence

effect of EPS Nur Huda Linear and PBV have positive

and PBV on (2011) Regression influence

stock return

4. fundamental Wahyuni Multiple PBV have significant

analysis of the Peni Padan Linear influence to stock return

stock return (2012) Regression

5. influence Saniman Multiple TATO, ROA, ROE, and

financial ratios Widodo Regression EPS have significant

towards the the (2007) influence, while PBV

stock return have negative influence

and ITO have no

influence towards stock

return

Source: Journal

II.3. Theoretical Framework

The theoretical framework supposed to help the reader to make logical sense of the relationships of the variables and factors that have been deemed relevant/important to the problem. It provides define of relationships between all the variables so the reader can understand the theorized relationships. To support a good research, this study based on theoretical grounding that constructed by the researcher as seen in the illustrations figure below.

The dependent variable of this research in stock returns. The independent variables of this research are ROE, DER, PBV and CR. Return on equity also is one of the profitability ratios. Debt to equity ratio is leverage ratio. Price to book value is a market ratio. CR is liquidity ratio.

Figure II.2

Theoritical Framework

Independent Variables

Return On Equity (ROE) (+)

Dependent Variable Debt to Equity Ratio (DER) (-) Stock Return (SR)

Price to Book Value (PBV) (+)

( Current Ratio (CR) (+)

Source: self-structured by the researcher

Variable Dependent : Stock Return

Variable Independent : ROE, DER, PBV, and CR

Based on the theoretical review from previous research that explained previously, the researcher has developed model for theoretical framework of this research that presented above. As can be seen, in this research, the researcher wants to research the determinants of Stock Return by using 4 independent variables which are

Return on Equity, Debt to Equity Ratio, Price to Book Value, and Current Ratio that will be explained briefly below.

1. Return on equity (ROE) measures the rate of return on the ownership

interest (shareholders' equity) of the common stock owners. It measures a

firm's efficiency to generating profits from every unit of shareholders'

equity. If Return on Equity increase, the performance of the company in

generate the profit is good. If the profits of the company increase, so the

demands of the stock also increase and the stock price will also increase. If

the stock price increases, so stock return will also increase. This statement

supported by Saniman Widodo (2007) that resulted Return on Equity give

positive influence to Stock Return.

2. Debt to equity ratio (DER) describes the ratio of debt and equity in

financing and equity capital to show the ability of the company to meet all

its obligations. Debt to Equity Ratio gives an overview of the company’s

ability to pay off all company’s debts when compared to the company’s

capital. Increasing in Debt to Equity Ratio could cause the amount of debt

is greater than capital. This leads the investors doubt to invest because the

risk is too high. So if Debt to Equity Ratio increases, stock return will

decrease and vice versa. This statement supported by Wahyuni Peni Pandan

(2012) that resulted Debt to Equity Ratio give negative influence to Stock

Return.

3. Price to Book Value ratio shows how large the investing value of the

company by the owner of the company, the higher this ratio, the greater the

additional wealth that enjoyed by the owner of the company. The price

book value ratio used to compare a company's current market price to

its book value. The high Price to Book Value means the ability of the

company in creating the value for shareholders is good. So if the Price to

Book Value increases, the stock return will also increase. This statement

supported by Wahyuni Peni Pandan (2012) that resulted Price to Book

Value give positive influence to Stock Return.

4. The current ratio indicates that current assets cover current liabilities. The

greater the ratio of current assets and current liabilities so the greater also

the company's ability to cover short-term obligations. High Current Ratio

indicates a company’s liquidity is high. A low current ratio is usually

indicative of a problem in liquidation. It is advantageous to investors

because the company is able to deal with business fluctuations. This will

affect the investment gains on stocks. The good company’s ability to pay

the debt, the smaller the risk for the investor. So if the current ratio

increases, the stock return will also increase. This statement supported by

Yulris Thamrin (2012) that resulted Current Ratio give positive influence

to Stock Return.

II.4. Hypothesis

Hypothesis is the temporary idea from research that has to be tested to get the fact.

From explanation above and from previous research, hypothesis from the research are:

Hypothesis 1 : Return on Equity, Debt to Equity Ratio, Price to Book Value,

and Current Ratio have significant influence simultaneously

towards Stock Return.

Hypothesis 2 : Return on Equity has positive significant influence toward stock

return.

Hypothesis 3 : Debt to Equity Ratio has negative significant influence

toward stock return.

Hypothesis 4 : Price to Book Value has positive significant influence

toward stock return.

Hypothesis 5 : Current Ratio has positive significant influence toward stock

return.

CHAPTER III

RESEARCH METHODOLOGY

III.1. Research Method

This chapter is designed to describe about research methodology that used by the researcher in this research. There are two different methods in doing the research which are quantitative analysis and qualitative analysis. Quantitative research is used to quantify the problem by way of generating numerical data into useable statistics by using some tools, such as Statistical Package for the Social Sciences

(SPSS), Eviews and etc. Quantitative research refers to the systematic empirical investigation of social phenomena via statistical, mathematical or computational techniques. Second is qualitative research is much more subjective than quantitative research and used very different methods of collecting information such as mainly individual, in-depth interviews and focus groups. Qualitative research tends and refers to the meanings, concepts, definitions, characteristics, metaphors, symbols, and description of things which the researcher will collect, analyze, and interpret the data by observing. The researcher used quantitative research for preparing the skripsi.

III.2. Types and Sources of Data

This research used a secondary data. Secondary data can be obtained indirectly by researchers. Secondary data usually obtained from publications and documentary data, published or unpublished.

Some of data used in this research is the stock price data and financial statement.

Fundamental factors required in this research obtained through IDX period 2009-

2012. Data stock return, Return on Equity (ROE), Debt Equity Ratio (DER), Price to Book Value (PBV), and Current Ratio (CR) obtained by quoting directly from

IDX and other publications related to this research. The process of data collection in this research will be simplified as follow: a. Collect information related with theory that used in this research from

books and journals. b. Gathered as many as possible previous researches related with the variables

that used in this research from books, journals, articles, working papers,

reports, etc. c. Collect the financial statements from IDX websites for period 2009- 2013.

III.3. Sampling Design

According to (Sugiyono, 2011) population is a generalization area consists of: objects / subjects with certain qualities and characteristics that determined by the researchers to be learned and make conclusions. Thus population is not only people but also objects and other natural objects. The population is not just the amount in the object / subjects studied, but also include characteristics / properties owned by the subject or the object. This research used pharmaceuticals to be an object.

According to (Sugiyono, 2011) sample is the part or the number and characteristic owned by the population. Researchers may not learn all that there of the object/subject in the population, such as, due to limited funds, energy and time, but

34 the researchers will take samples of the population. The results that obtain from the samples will be applied to the population. The samples taken from the population should really representative. There are the criteria of the sample:

1. Pharmaceuticals companies that listed in Indonesia Stock Exchange during

the years 2009 until 2012.

2. The companies publish a complete financial statement data during the years

2009 until 2012.

3. Not delisting in period 2009 until 2012.

The numbers of sample that same with the criteria are 9 companies, with observation performance for 4 years, so the total sample size is 36. The sample of this study can be seen in the table as follows:

Table III.1 Sample of Companies

N Companies Name Index

1 Darya-Varia Laboratoria Tbk. DVLA

2 Indofarma (Persero) Tbk. INAF

3 Kimia Farma (Persero) Tbk. KAEF

4 Kalbe Farma Tbk. KLBF

5 Merck Tbk. MERK

6 Pyridam Farma Tbk. PYFA

7 Schering Plough Indonesia Tbk. SCPI

8 Taisho Pharmeceutical Indonesia (PS) Tbk. SQBI

9 Tempo Scan Pacific Tbk. TSPC

III.4. Research Variable

Research variables that will be tested in this research are the dependent and independent variables.

1. The dependent variable is the variable affected by the independent variable.

This research uses stock return as dependent variable. The concept of stock

returns in this research is the current stock price minus the stock price of

the previous period divided by the previous period's stock price. The

amount of stock returns can be formulated as follows:

2. Independent variable is the variable that affects the amount of the

dependent variable. Independent variable that used in this research as

follows:

a. Return on Equity (ROE)

Return on Equity (ROE) ratio measures the rate of return on the ownership

interest (shareholders' equity) of the common stock. ROE is one of the

profitability ratios that can be obtained by dividing net income after tax

with the equity of shareholder. It measures a firm's efficiency at generating

profits from every unit of shareholders' equity (also known as net assets or

assets minus liabilities). Return on equity systematically can be formulated

as follow:

36 b. Debt to Equity Ratio (DER)

Debt to Equity Ratio (DER) is the one of the leverage ratio. DER describes the ratio of debt (payable) and equity in financing and equity capital to show the ability of the company to meet all its obligations. DER can be obtained by dividing total debt (payable) with total equity of the company.

Debt to Equity Ratio systematically can be formulated as follow:

c. Price to Book Value (PBV)

Price to Book Value (PBV) is the one of the market value. This ratio shows how large the investing values of the company by the owner of the company. The higher this ratio, the greater the additional wealth. PBV can be obtained by dividing market price per share with book value per share.

Price to Book Value (PBV) systematically can be formulated as follow:

d. Current Ratio (CR)

Current ratio is the one of the liquidity ratio. This ratio used to determine the ability of a company to fulfill short term obligations. Current ratio can be obtained by dividing current assets with current liabilities. Current Ratio

(CR) systematically can be formulated as follow:

Table III.2 Formulation

Operational Measuring Variable Formula Definition Scale Dependent Variable current stock price minus the stock price of the Stock previous period Ratio (%) Return divided by the previous period's stock price Independent Variables

Net Income After ROE Tax Divided to Ratio (%) Total Equity

Total Payable DER divided to Total Ratio (%) Liabilities

Market Price /Share divided to PBV Ratio (%) Book Value /Share Current Asset divided to CR Ratio (%) Current Liabilities

III.5. Data Analysis Technique

III.5.1. Descriptive Statistics

Before perform the hypothesis test, first tested statistic general form of descriptive statistics. Descriptive statistics include mean, minimum, maximum and standard deviation to find out the distribution as sample data.

Descriptive statistics regarding the collection and summarizing of the data and presentation of summarization results. Statistical data, which can be obtained by the census, surveys, polls or other observations generally still random, raw data and not well organized. These data should be summarized properly and regularly,

38 either presented in tabular or graphical that is useful as a basis for decision-making process.

III.5.2. Classical Assumptions Test

The equation of multiple linear regression and the independent variables need to be tested in order to get a valid a reliable result. In this research, there are four classical assumptions being tested. Classical assumption test consists of: a. Normality Test

According (Ghozali, 2005), normality test was conducted in order to determine whether the samples taken have the criteria for distribution or normal distribution.

Before analyzed data with regression analysis, data should be carried out as a condition of normality test. Normality test intention is to conduct tests on whether or not normal distribution of data to be analyzed (Arikunto, 2006). A normal distributed variable if the test results show the significant value above 5%. If the data is not normal distributed, then the data can be normalized by means of data transformation.

There are others ways to measure normality data by using skewness and kurtosis.

Skewness quantifies how symmetrical the distribution is. Kurtosis quantifies wheter the shape of the data distribution matches the Gaussian distribution. In order to see the normality of the data can be shown from the value of skewness and kurtosis that is in the range of tolerance between -2 until +2. b. Multicollinearity Test

Multicollinearity test aims to test whether the regression model found a correlation between the independent variable. If the correlation of each independent variable,

39 then variables are not orthogonal. Orthogonal variable is the independent variable that the correlation between the members of the other independent variables with multicollinearity zeros. Test done by looking at the tolerance value and Variance

Inflation Factor (VIF). Commonly multicollinearity test used value 0.10 and VIF tolerance value is smaller than 10. c. Autocorrelation Test

According to (Ghozali, 2005) autocorrelation test aims to examine whether there is regression model or no correlation between the errors in period t with error in period t-1. This assumption is sometimes violated when data are collected over sequential period of time because a residual at any one point in time may tend to be similar to residuals at adjacent points in time. This pattern in the residuals is called autocorrelation. When a set of data has substantial autocorrelation, the validity of a regression model can be in serious doubt.

If autocorrelation in the variant of sample do not describe the variant of its population and regression model which result cannot be used for prediction in value of dependent variable to the certain independent variable. In order to see the existence of autocorrelation of dependent variable with itself can be shown from the value of Durbin-Watson that is in the range of tolerance between -2 until +2. d. Heteroscedasticity Test

According to (Ghozali, 2005) heteroscedasticity test conducted to test whether the regression model occurs of the inequality variance in the residual of observation to other observations. A good regression model is homocedasticity or not heteroscedasticity. Heteroscedasticity in this research tested using test scatter plot.

Whether there is any or not heteroscedasticity can be done by looking at the presence or absence of a particular pattern in the scatter plot graph between

SDRESID and ZPRED where the Y is the predicted Y and X is the residual. If there is a particular pattern, such as the existing dots form a certain pattern (wavy, widened then narrowed), indicates there has been a heteroscedasticity. If there is no pattern (point spread) above and below the 0 then there is no heteroscedasticity.

III.5.3. Multiple Regression Analysis

Multiple regression analysis conducted to find out how far the dependent variable affects the independent variable. In multiple regressions analysis has one dependent variable and more than one independent variable. In this research the dependent variable is stock return and the independent variable are return on equity (ROE), debt to equity ratio (DER), price to book ratio (PBV), and current ratio (CR). Regression equation in this research is:

RET= α + β1ROE + β 2DER + β 3PBV + β 4CR + e

Where:

RET : Stock Return (Dependent Variable)

α : Intercept / Constant

ROE : Return on Equity (Independent Variable)

DER : Debt to Equity Ratio (Independent Variable)

PBV : Price to Book Value (Independent Variable)

CR : Current Ratio (Independent Variable) e : Error

III.5.4. Hypothesis Test

In this research, hypothesis test aims to find the relationship between independent variables and dependent variable. There are two kinds of hypothesis used in this research, Null hypothesis symbolized by H0 there is no relationship between independent variables toward dependent variable (β=0), while alternative hypothesis symbolized by ha means there is relationship between independent variables toward dependent variable (β≠0). So the formulated of hypothesis for this research as follows:

H01: β1=0 There are no simultaneous influence of Return on Equity,

Debt to Equity Ratio, Price to Book Value, and Current Ratio to

Stock Return.

Ha1: β1>0 There are simultaneous influence of Return on Equity, Debt

to Equity Ratio, Price to Book Value, and Current Ratio to Stock

Return.

H02:β2=0 There is positive no significant influence between Return on

Equity to Stock Return

Ha2:β2>0 There is positive significant influence between Return on Equity to

Stock Return

H03:β3=0 There is negative no significant influence between Debt to Equity

Ratio to Stock Return

Ha3:β3<0 There is negative significant influence between Debt to Equity

Ratio to Stock Return

H04:β4=0 There is positive no significant influence between Price to Book

Value to Stock Return

Ha4:β4>0 There is positive significant influence between Price to Book

Value to Stock Return

H05:β5=0 There is positive no significant influence between Current Ratio to

Stock Return

Ha5:β5>0 There is positive significant influence between Current Ratio

to Stock Return

To these hypotheses will be test statistically by using R-Square, F-Test, and T-Test.

Each test will be described as follows: a. Coefficient of determination (R-Square)

The coefficient of determination (R-Square) is a value that indicates how much the independent variable can explain the dependent variable. The higher the value of

R-Square means the more the ability of independent variables explain the dependent variable. The smaller the value of R-Square means the less the ability of independent variables to explain the dependent variable. There are some factors of the coefficient of determination is as follows:

 R2 value should range from 0 to 1

 If R2 = 1 indicates there is a perfect match of the independent variable with

the dependent variable.

 If R2 = 0 indicates no relationship between the independent variable on the

dependent variable.

43 b. F Regression (F-Test)

F Test (F value of regression) is the independent variables to look the overall of independent variables toward the dependent variable. F Test determined whether the return on equity, debt to equity ratio, price to book value, and current ratio simultaneously affect to stock return. The result of F-test also can be analyzed by comparing the score of significance through regression test and the degree of probability which is 5% or 0.05. If the significance is more than 0.05 then the independent variables simultaneously are not affecting the dependent variable, while the significance is less than 0.05 means that the independent variables simultaneously are affecting the dependent variable. c. Partial regression coefficient test (t-Test) t Test is performed to determine whether independent variable significantly influence the dependent variable. T test (T value regression) in this research using significance level of 5% or 0.05. If the significance is more than 0.05 then the independent variables partially are not affecting the dependent variable, while the significance is less than 0.05 means that the independent variables partially are affecting the dependent variable. T test was conducted to determine whether the return on equity, debt to equity ratio, price to book value, and current ratio are partially affect to stock returns.

CHAPTER IV

DATA ANALYSIS AND RESULT INTERPRETATION

IV.1. Object Statistical Description

Object statistical descriptions consist of a dependent variable and independent variables. Dependent variable is stock return, and independent variables are return on equity (ROE), debt to equity ratio (DER), price to book value (PBV), and current ratio (CR). The data gathered in time period from 2009 until 2012.

IV.1.1. Statistics Descriptive of Research Variable

The descriptive statistics below is designed to test the hypothesis that provides general information, as follow:

Table IV.1 Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

ROE 36 -1.18 .55 .1054 .33209 DER 36 .18 24.48 2.2192 5.44490 PBV 36 -55.48 8.20 1.5192 10.08982 CR 36 .89 7.61 3.4117 1.62007 RET 36 -.69 2.77 .5931 .71361 Valid N 36

(listwise) Source: SPSS

Based on the table above there are five variables which is Return on Equity (ROE),

Debt to Equity (DER), Price to Book Value (PBV), and Current Ratio (CR) as an independent variable and Stock Return as a dependent. There are 36 data (N) for each variable in this research on yearly basis for 4 years (2009 – 2012). The data are describes in minimum, maximum, mean, and standard deviation to find out the distribution as sample data.

Based on the descriptive statistic, the information of dependent variable and independent variables are describe as follows:

1. Stock Return, based on descriptive statistic, Stock return has a mean 0.5931%

while the minimum is -0.69% which happened to Kalbe Farma Tbk. In

2012, and the maximum is 2.77% which happened to Schering Plough

Indonesia Tbk. in 2009. Standard deviation of variable Debt to Equity

Ratio in this research is 0.71361%.

2. Return on Equity (ROE), based on descriptive statistic, Return on Equity

has a mean 0.1054 % while the minimum is -1.18% which happened to

Schering Plough Indonesia Tbk. In 2011, and the maximum is 0.55%

which happened to Schering Plough Indonesia Tbk. In 2009. Standard

deviation of variable Return on Equity in this research is 0.33209%.

3. Debt to Equity Ratio (DER), based on descriptive statistic, Debt to Equity

Ratio has a mean 2.2192% while the minimum is 0.18% which happened to

Merck Tbk. In 2011, and the maximum is 24.48% which happened to

Schering Plough Indonesia Tbk. in 2012. Standard deviation of variable

Debt to Equity Ratio in this research is 5.44490%.

4. Price to Book Value (PBV), based on descriptive statistic, Price to Book

value has a mean 1.5192% while the minimum is -55.48% which happened

to Schering Plough Indonesia Tbk. In 2011, and the maximum is 8.20%

which happened to Merck Tbk. In 2012. Standard deviation of variable Price to Book Value in this research is 10.08982%. 5. Current Ratio (CR), based on descriptive statistic, Current Ratio has a mean

3.4117% while the minimum is 0.89% which happened to Schering Plough

Indonesia Tbk. In 2010, and the maximum is 7.61% which happened to

Taisho Pharmaceutical Indonesia (PS) Tbk. In 2010. Deviation of Current

Ratio in this research is good, because the value of standard deviation is

1.62007% lower than mean mean value which is 3.4117%.

IV.2. Classical Assumption Test

IV.2.1. Normality Test Data

Normality test conducted in order to determine whether the samples taken have met the criteria for distribution or normal distribution. Before the data were analyzed with regression analysis should be carried out as a condition of normality test. Normality test intention is conduct to tests whether there is normal or not normal distribution of data to be analyzed. The result of histogram graphic will be showed by figure IV.2.

Figure IV.2 Histogram

Source: SPSS

Based on the graphic above shown the distribution plot approach to normal, to conclude the data is normal or not, cannot see only on histogram, because it can be misleading especially for the little sample. Another method to analyze the graph is looking at normal probability plot which is comparing to cumulative distribution of normal distribution. If residual data is normal, then the line describes the real data will follow the diagonal line.

Figure IV.3 Normal P-P Plot

Source: SPSS

By looking at graphs display histogram and normal plots graphs can be concluded that the normal charts and graphs plot histograms give a normal distribution pattern. It indicates by the distribution pattern. It indicates by the distribution of data are scatter close to the diagonal line which means the distribution of data is normal.

Table IV.4 Skewness and Kurtosis

Descriptive Statistics

N Skewness Kurtosis

Statistic Statistic Std. Error Statistic Std. Error

Unstandardized Residual 36 .332 .393 -.055 .768

Valid N (listwise) 36 Source: SPSS

Based on the table above, the result of skewness is 0.844 that between -2 until +2 and the result of kurtosis is -0.716 that between -2 until +2 means that the data is normal.

IV.2.2. Multicollinearity Test

Multicollinearity test aims to test whether the regression model found a correlation between the independent variable. If the correlation of each independent variable, then variables are not orthogonal. There are two indicates of multicollinearity test.

First, the value of tolerance is higher than 0 and lower than 1 (0>tolerance<1).

Second, the value of VIF is lower than 10.

Table IV.5 Multicollineary Test Coefficientsa

Collinearity Statistics

Model Tolerance VIF

1 (Constant)

ROE .191 5.237

DER .359 2.789

PBV .423 2.367

CR .752 1.330

a. Dependent Variable: RET

Source: SPSS

Based on the table above, there are no indications of multicollinearity problem.

The result is the value of tolerance is more than 0 and lower than 1 and the value of VIF are lower than 10.

IV.2.3. Autocorrelation Test

Autocorrelation test aims to examine whether there is regression model or no correlation between the errors in period t with error in period t-1. Autocorrelation was tested using the Durbin-Watson. If the result of Durbin Watson statistic is smaller than -2, it means there are positive autocorrelation problem. If the value of

Durbin Watson statistics is bigger than +2, it means there are negative autocorrelation problem.

Table IV.6 Autocorrelation Test

Model Summaryb Change Statistics

R Square

Model Change F Change df1 df2 Sig. F Change Durbin-Watson

1 .389 4.931 4 31 .003 1.723

a. Predictors: (Constant), CR, PBV, DER, ROE

b. Dependent Variable: RET

Source : SPSS

Based on table above, the value of Durbin Watson test is 1.723. The result of

Durbin Watson test shows that the value of Durbin Watson is between -2 to 2 (-

IV.2.4. Heteroscedasticity Test

Heteroscedasticity test aims to test whether there is inequality variance of the residual an observation to other observations. A good regression model is homocedasticity or not heteroscedasticity. Heteroscedasticity in this research tested using test scatter plot. Heteroscedasticity can be determined by scatter plot graph, the dots formed must be spread randomly, spread both above and below number 0 on the Y axis. The result of heterocedasticity shown below:

Figure IV.7 Scatterplot

Source: SPSS

IV.3. Multiple Regression Analysis

Multiple regression analysis conducted to find out how far the dependent variable affects the independent variable. In multiple regressions analysis has one dependent variable and more than one independent variable. Based on SPSS output partially the influent of four variables which is Return on Equity (ROE), Debt to

Equity Ratio (DER), Price to Book Value (PBV), and Current Ratio (CR) to dependent variable which is Stock Return shown on the table below.

Table IV.8 Multiple Regression Analysis

Coefficientsa

Standardized

Unstandardized Coefficients Coefficients

Model B Std. Error Beta T Sig.

1 (Constant) 1.013 .261 3.887 .000

ROE 2.563 .690 1.193 3.712 .001

DER .070 .031 .538 2.293 .029

PBV -.029 .015 -.415 -1.923 .064

CR -.235 .071 -.534 -3.295 .002 a. Dependent Variable: RET

Source: SPSS

Based on the table above the multiple regressions can be arranged as follows:

RET= 1.013 + 2.563 ROE + 0.070 DER – 0.029 PBV - 2.35 CR

Based on regression equation model above, there are three independent variables are significant influence to dependent variable which is Return on Equity, Debt to

Equity ratio, and Current Ratio, and one variable is not significant to dependent variable which is Price to Book Value.

IV.4. Hypothesis Test

IV.4.1. Coefficient of Determination (R-Square)

Coefficient of determination value indicates how much the independent variable can affect the dependent variable. The higher the value of R-Square means the more ability of independent variables affect the dependent variable. The smaller the value of R-Square means the less the ability of independent variables to affect the dependent variable. The value of coefficient determination (R-Square) is range from 0 to 1. The results of coefficient of determination value as follow.

Table IV.9 R-Square

Model Summaryb

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .624a .389 .310 .59278 a. Predictors: (Constant), CR, PBV, DER, ROE b. Dependent Variable: RET

Source: SPSS

Based on SPSS output above it shown the result of determination of coefficient

(adjusted R-Square) is 0.310. It means, the influence of four independent variables

(Return on Equity, Debt to Equity Ratio, Price to Book Value, and Current Ratio) toward Stock return in this research is 31%, the rest 69% its influence by other factors which is not selected in this research.

IV.4.2. F Test (F Regression)

F-Test used to determine whether there is significant influence between dependent variable to the overall of independent variables. The result of F-test also can be analyzed by comparing the score of significance through regression test and the degree of probability which is 5% or 0.05. If the significance is more than 0.05 then the independent variables simultaneously are not affecting the dependent variable, while the significance is less than 0.05 means that the independent variables simultaneously are affecting the dependent variable. The results of F-test shown below.

Table IV.10 F-Test

b ANOVA

Model Sum of Squares df Mean Square F Sig.

1 Regression 6.930 4 1.733 4.931 .003a

Residual 10.893 31 .351

Total 17.824 35

a. Predictors: (Constant), CR, PBV, DER, ROE

b. Dependent Variable: RET

Source: SPSS

Based on the table above, the value of significant is 0.003. Because the value of significant is lower than 0.05, it indicates that the Return on Equity, Debt to Equity ratio, Price to Book Value, and Current Ratio simultaneously have influence to

Stock Return.

IV.4.3. Partial Regression Coefficient Test (t-Test) t-Test is performed to determine whether independent variable partially significantly influence the dependent variable. t- Test in this research using significance level of 5% or 0.05. If the significance is more than 0.05 then the independent variables partially are not affecting the dependent variable, while the significance is less than 0.05 means that the independent variables partially are affecting the dependent variable. The results of T-Test shows on table below:

Table IV.11 t-Test

Coefficientsa Unstandardized Standardized

Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) 1.013 .261 3.887 .000

ROE 2.563 .690 1.193 3.712 .001

DER .070 .031 .538 2.293 .029

PBV -.029 .015 -.415 -1.923 .064

CR -.235 .071 -.534 -3.295 .002 b. Dependent Variable: RET

Source: SPSS

Based on the table above, the three independent variables are influencing to dependent variable, because the significant value is lower than 0.05. Based on

SPSS output above, there are three independent variables significantly influent to dependent variable, those variable are Return on Equity with significant value is

0.001, Debt to Equity Ratio with significant value is 0.029, and Current Ratio with significant value is 0.002. the rest independent variable is not significantly influent

56 to dependent variable, because of the significant value is more than 0.05, those variable is Price to Book Value with significant value is 0.064.

IV.5. Interpretation of Results

In this part will describe the result of analysis. Whether the analysis is accepted Ha or reject H0, or vice versa. The results of analysis are as follows: a. Return on Equity (ROE), Debt to Equity Ratio (DER), Price to Book Value

(PBV), and Current Ratio (CR) towards Stock Return

Hypothesis 1 : Return on Equity, Debt to Equity Ratio, Price to Book

Value, and Current Ratio have significant influence simultaneously towards Stock Return.

Based on the statement of H01: β1=0 that There are no simultaneous influence of

Return on Equity, Debt to Equity Ratio, Price to Book Value, and Current Ratio to

Stock Return is rejected and will be accepting Ha1: β1>0 that There are simultaneous influence of Return on Equity, Debt to Equity Ratio, Price to Book

Value, and Current Ratio to Stock Return. Based on the value of F-Test, the significant value is 0.003 that is lower than 5% or 0.05, showed that all independent variables, ROE, DER, PBV and CR, that being analyzed in this research have significant influence simultaneously to Stock Return. b. Return of Equity (ROE) towards Stock Return

Hypothesis 2 : Return on Equity has positive significant influence toward stock return.

Based on the statement of H01: β1=0 that there is positive no significant influence between Return on Equity (ROE) towards Stock Return is rejected and will be

57 accepting the statement of Ha1: β1>0 that there is positive significant influence between Return on Equity (ROE) towards Stock return. Based on the value of T-

Test, the significant results is 0.001 that are lower than 0.05, which is means there is significant influence between Return on Equity (ROE) towards Stock Return.

The regression coefficient result is 1.193 which is positive, it indicates with increasing 1% of Return on Equity (ROE) will increase 1.193% of Stock Return.

This result indicates that changes the value of Return on Equity (ROE) will provide positive contribution to stock return, such as increase or decrease the value of Return on Equity (ROE) will affect the increase and decrease in stock return.

The result of this research is similar to previous result by (Soerinawati, 2003). The higher the value of return on equity (ROE), the higher the value of stock return and vice versa.

This research rejected the previous research by (Harjito & Aryayoga, 2009) and

(Susilowati & Turyanto, 2009) states that return on equity (ROE) have no significant to stock return.

Based on the result, return on equity (ROE) can be used as a predictor in stock return. For investors with a long term investment orientation, this ratio has important rule because the greater the value of return on equity (ROE) the greater the part of investor to obtained income per share. c. Debt to Equity Ratio (DER) towards Stock Return

Hypothesis 3 : Debt to Equity Ratio has negative significant influence toward stock return.

The result of this research which DER has positive significant influence is contrary with the previous hypothesis that has stated before. It goes along with the value of

Sig. in T-Test showed result for 0.029 that are lower than 0.05, which means the influence from DER to Stock Return is significant. If seen on the regression coefficient, DER with coefficient of 0.538 indicates positive correlation with Stock

Return. It indicates with increasing 1% of Debt to Equity Ratio (DER) will increase 0.538 of stock return. From those, it can be concluded that DER has positive significant influence to Stock Return. This result is contrast with previous hypothesis regarding to “DER has negative significant influence to Stock Return”.

The result of this research is similar to previous result by (Thamrin, 2012) and

(Hartati, 2010) states that debt to equity ratio (DER) have positive significant effect to stock return. This research rejected the previous research by (Pandan,

2012) states that debts to equity ratio (DER) have no significant to stock return.

According to (Susilowati), the using of high debt, which is reflected by the debt ratio (the ratio of debt to total assets), and the profit before interest and tax will generate the greater earnings per share. If the earnings per share increase, it will have an impact on stock prices or increase stock returns, so theoretically debt to equity ratio (DER) positively have effect to stock returns. The higher Debt Equity

Ratio, the higher stock return, and vice versa. d. Price to Book Ratio (PBV) towards Stock Return

Hypothesis 4 : Price to Book Value has positive significant influence toward stock return.

Based on the statement of H03: β3=0 that there is positive no significant influence between Price to Book Value (PBV) towards Stock Return is accepted and will be

59 rejecting the statement of Ha3: β3>0 that there is positive significant influence between Price to Book Value (PBV) towards Stock return. Based on the value of

T-Test, the significant results is 0.064 which is greater than 0.05, which is means there is no significant influence between Prices to Book Value towards Stock

Return. The regression coefficient result is -0.415 which is negative, it indicates with increasing 0.01 of Return on Equity (ROE) will decrease 0.415% of Stock

Return.

The result of this research is similar to previous result by (Ratnasari, 2003) and

(Fama & French, 1992) Fama and French states that stock with a low price to book value (PBV) have a tendency to give a higher return than the market average.

Companies that have higher price to book value (PBV) tend to have weak financial performance than the opposite characteristic. According to (Fama & French, 1992) found that the PBV has a negative relationship with stock return.

This research rejected the previous research by (Huda, 2011) and (Pandan, 2012) states that there is significant influence between price to book ratio (PBV) to stock return.

Different with (Widodo, 2007) states that price to book ratio (PBV) have negative and significant influence. Its means price to book value (PBV) have significant to stock return, when the value of price to book (PBV) higher, the stock return will be lower, and vice versa.

Test results of variable price to book value (PBV) showed that there is no significant effect on returns. It is indicates that the value of price to book value

(PBV) of the company was not fully taken by investors in purchase the stock. It can be explained that higher price to book value (PBV) indicate that the company

60 is growth, so investors also argue that the conditions will be favorable for investment. This condition will increase the company's stock price. However, there are contradictions that occur in price to book value (PBV) ratio, where the value of price to book value (PBV) ratio is too high; it is not desired by investors. The main reason is because of the high price to book value (PBV) reflects that the company's stock price is considered too high, so it is not comparable to the book value of the company or in this case, the stock have overvalued stock prices. The contradictory conditions cause prices to book value (PBV) have negative significant effect on stock returns. e. Current Ratio (CR) towards Stock Return

Hypothesis 5 : Current Ratio has positive significant influence toward stock return.

The result of this research which CR has negative significant influence is contrary with the previous hypothesis that has stated before. It goes along with the value of

Sig. in T-Test showed result for 0.002 that are lower than 0.05, which means the influence from CR to Stock Return is significant. If seen on the regression coefficient, DER with coefficient of -0.534 indicates negative correlation with

Stock Return. It indicates with increasing 1% of CR will decrease -0.534 of stock return. From those, it can be concluded that CR has negative significant influence to Stock Return. This result is contrast with previous hypothesis regarding to “CR has positive significant influence to Stock Return”. The higher Current Ratio, the lower stock return, and vice versa.

This research rejected the previous research by (Malintan, 2011) states that Current

Ratio (CR) is not a determining factor of changes in stock returns.

According to (Sawir, 2009), a low current ratio is usually considered to be indicative of a problem in liquidation, otherwise current ratio is too high is also not good, because it shows the number of idle funds, which ultimately can reduce company profitability.

CHAPTER V

CONCLUSION AND RECOMMENDATION

V.1. Conclusion

Based on the regression analysis on the variables that affect the stock return in pharmaceuticals companies in the period 2009 to 2012 by using T-Test and F-Test with significant level of 5% or 0.05 and used SPSS 20 for Windows. Based on the result of analysis can be concluded as follows:

1. F-Test result with the significant value 0.003 showed that all independent

variables, ROE, DER, PBV and CR, that being analyzed in this research

have significant influence simultaneously to Stock Return.

2. Variable Return on Equity (ROE) has a positive significant effect to stock

return. The regression coefficient is 1.193 which is positive with significant

level is 0.001 which is lower than 0.005. It indicates that Return on Equity

(ROE) influence to stock return. The greater Return on Equity (ROE), the

greater stock return or vice versa. Return on equity (ROE) can be used as a

predictor in stock return. For investors with a long term investment

orientation, this ratio has important rule because the greater the value of

return on equity (ROE) the greater the part of investor to obtained income

per share.

3. Variable Debt to Equity Ratio (DER) has a positive significant effect to

stock return. The regression coefficient is 0.538 which is positive with

significant level is 0.029 which is lower than 0.005. It indicates that Debt to

Equity Ratio (DER) influence to stock return. The greater Debt to Equity

Ratio (DER), the greater stock return or vice versa. Using of high debt,

which is reflected by the debt ratio (the ratio of debt to total assets), and the

profit before interest and tax will generate the greater earnings per share. If

the earnings per share increase, it will have an impact on stock prices or

increase stock returns, so theoretically debt to equity ratio (DER) positively

have effect to stock returns. The higher Debt Equity Ratio, the higher stock

return, and vice versa.

4. Variable Price to Book Value has no significant effect to stock return. The

regression coefficient is -0.415which is negative with significant level is

0.064 which is greater than 0.005. It indicates that Price to Book Value

(PBV) have no influence to stock return. PBV of the company was not

fully taken by investors in purchase the stock. There are contradictions that

occur in price to book value (PBV) ratio, where the value of price to book

value (PBV) ratio is too high; it is not desired by investors. The main

reason is because of the high price to book value (PBV) reflects that the

company's stock price is considered too high, so it is not comparable to the

book value of the company or in this case, the stock have overvalued stock

prices. The contradictory conditions cause prices to book value (PBV) have

negative significant effect on stock returns.

5. Variable Current Ratio (CR) has a negative significant effect to stock return.

The regression coefficient is -0.534 which is negative with significant level

is 0.002 which is lower than 0.005. It indicates that Current Ratio (CR)

have negative influence to stock return. The greater Current Ratio (CR), the

lower stock returns or vice versa. A low current ratio is usually considered

to be indicative of a problem in liquidation, otherwise current ratio is too

high is also not good, because it shows the number of idle funds, which

ultimately can reduce company profitability.

V.2. Recommendation

Based on the limitations, there are the recommendations for further research as follows: a. For Investor

Based on the t-Test, the most significant influence independent variable is

Return on Equity since the value of t in T-Test result showed the highest

number among others, 3.712. The second one is Debt to Equity Ratio that

has significance level for 2.293, and the least significant influence is

Current Ratio that indicating by the number of t value is (-3.295). Based on

the data, Return on Equity gives more influence to stock return. For

investors who choose to invest the stock of pharmaceutical company

should more consider to Return on Equity of company. But to make sure

that the company really could gives profit, investor should consider to the

other financial ratio and conditions of the company. b. For Researchers

The research period was only for 4 (four) years, from the period of 2009 to

2012. Therefore, the influence of each variable cannot be known in the

long term. Expand the research by adding sample research of all companies

that listed on the IDX and make longer observation periods so that the

65 results will reflect the condition of the company in the long term. This research only used 4 (four) variables that influence stock return, there are

Return on Equity (ROE), Debt to Equity Ratio (DER), Price to Book Value

(PBV), and Current Ratio (CR). Adding other variables that thought to affect stock return such as Dividend Payout Ratio (DPR), Return on

Investment (ROI), Inventory Turnover (ITO), Total Asset Turnover

(TATO), Price Earnings Ratio (PER), Earning Per Share (PER) and many more and internal factors that influence such as firm size, capital, asset structure, and many more and considering the social, politic, and economic condition.

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APPENDICES

Sample of Data in Period 2009 until 2012 in Pharmaceutical Company No Companies Name Code Year ROE DER PBV CR RET 2009 0.13 0.41 1.57 3.05 0.59 Darya-Varia 2010 0.17 0.33 2.14 3.72 -0.24 1 DVLA Laboratoria Tbk. 2011 0.17 0.28 1.95 4.83 -0.02 2012 0.18 0.28 2.36 4.31 0.47 2009 -0.18 1.78 1.02 1.34 0.66 Indofarma (Persero) 2010 0.05 1.36 0.93 1.39 -0.04 2 INAF Tbk. 2011 0.06 0.83 1.83 1.54 1.04 2012 0.07 0.83 1.63 2.10 1.02 2009 0.06 0.57 0.74 2.00 0.67 Kimia Farma 2010 0.12 0.49 0.85 2.43 0.25 3 KAEF (Persero) Tbk. 2011 0.14 0.43 1.94 2.75 1.14 2012 0.14 0.44 2.97 2.80 1.18 2009 0.22 0.39 3.30 2.99 2.25 2010 0.24 0.23 6.62 4.39 1.50 4 Kalbe Farma Tbk. KLBF 2011 0.25 0.28 5.98 3.65 0.05 2012 0.25 0.29 7.83 3.41 -0.69 2009 0.41 0.23 5.57 5.04 1.25 2010 0.33 0.20 6.44 6.23 0.21 5 Merck Tbk. MERK 2011 0.47 0.18 7.94 7.52 0.37 2012 0.26 0.37 8.20 3.87 0.15 2009 0.05 0.37 0.81 2.10 1.20 Pyridam Farma 2010 0.05 0.30 0.87 3.01 0.15 6 PYFA Tbk. 2011 0.06 0.43 1.33 2.54 0.39 2012 0.06 0.55 1.10 2.41 0.01 2009 0.55 9.49 5.57 0.92 2.77 Schering Plough 2010 -0.66 18.28 7.22 0.89 -0.03 7 SCPI Indonesia Tbk. 2011 -1.18 13.47 -55.48 3.78 -0.34 2012 -0.72 24.48 5.93 2.72 0.25 2009 0.16 0.21 0.54 3.83 1.17 Taisho 2010 0.34 0.19 0.53 7.61 0.06 8 Pharmeceutical SQBI Indonesia (PS) Tbk. 2011 0.40 0.20 0.43 5.80 -0.08 2012 0.42 0.22 0.79 4.85 0.87 2009 0.15 0.34 1.37 3.47 0.83 Tempo Scan Pacific 2010 0.19 0.38 2.89 3.37 1.34 9 TSPC Tbk. 2011 0.20 0.40 3.85 3.08 0.49 2012 0.06 4.89 -0.85 4.05 0.65

DESCRIPTIVES VARIABLES=X1 X2 X3 X4 Y /STATISTICS=MEAN STDDEV MIN MAX.

Descriptive [DataSet0] Descriptive Statistics

N Minimum Maximum Mean Std. Deviation ROE 36 -1.18 .55 .1054 .33209 DER 36 .18 24.48 2.2192 5.44490 PBV 36 -55.48 8.20 1.5192 10.08982 CR 36 .89 7.61 3.4117 1.62007 RET 36 -.69 2.77 .5931 .71361 Valid N (listwise) 36

REGRESSION /DESCRIPTIVES MEAN STDDEV CORR SIG N /MISSING LISTWISE /STATISTICS COEFF OUTS R ANOVA COLLIN TOL CHANGE ZPP /CRITERIA=PIN(.05) POUT(.10) /NOORIGIN /DEPENDENT Y /METHOD=ENTER X1 X2 X3 X4 /SCATTERPLOT=(*SDRESID ,*ZPRED) /RESIDUALS DURBIN HIST(ZRESID) NORM(ZRESID).

Regression [DataSet0]

Descriptive Statistics

Mean Std. Deviation N RET .5931 .71361 36 ROE .1054 .33209 36 DER 2.2192 5.44490 36 PBV 1.5192 10.08982 36 CR 3.4117 1.62007 36

Correlations

RET ROE DER PBV CR Pearson Correlation RET 1.000 .326 -.086 .207 -.247 ROE .326 1.000 -.746 .642 .373 DER -.086 -.746 1.000 -.263 -.292 PBV .207 .642 -.263 1.000 .003 CR -.247 .373 -.292 .003 1.000 Sig. (1-tailed) RET . .026 .309 .113 .073 ROE .026 . .000 .000 .013 DER .309 .000 . .060 .042 PBV .113 .000 .060 . .492 CR .073 .013 .042 .492 . N RET 36 36 36 36 36 ROE 36 36 36 36 36 DER 36 36 36 36 36 PBV 36 36 36 36 36 CR 36 36 36 36 36

Variables Entered/Removed

Variables Variables Model Entered Removed Method 1 CR, PBV, DER, . Enter ROE a. All requested variables entered.

Model Summaryb Change Statistics

R Square Durbin-

Model Change F Change df1 df2 Sig. F Change Watson

1 .389 4.931 4 31 .003 1.723 a. Predictors: (Constant), CR, PBV, DER, ROE b. Dependent Variable: RET

ANOVAb

Model Sum of Squares df Mean Square F Sig. 1 Regression 6.930 4 1.733 4.931 .003a Residual 10.893 31 .351 Total 17.824 35 a. Predictors: (Constant), CR, PBV, DER, ROE b. Dependent Variable: RET

Residuals Statisticsa

Minimum Maximum Mean Std. Deviation N Predicted Value -.3129 2.7076 .5931 .44499 36 Std. Predicted Value -2.036 4.752 .000 1.000 36 Standard Error of Predicted .105 .580 .185 .122 36 Value Adjusted Predicted Value -.1629 2.3385 .5965 .38297 36 Residual -1.33789 1.45601 .00000 .55788 36 Std. Residual -2.257 2.456 .000 .941 36 Stud. Residual -2.305 2.503 .001 .971 36 Deleted Residual -1.39484 1.51207 -.00341 .60681 36 Stud. Deleted Residual -2.490 2.757 .003 1.010 36 Mahal. Distance .133 32.481 3.889 7.761 36 Cook's Distance .000 .204 .021 .038 36 Centered Leverage Value .004 .928 .111 .222 36 a. Dependent Variable: RET

Charts

Descriptive Statistics

N Skewness Kurtosis

Statistic Statistic Std. Error Statistic Std. Error

Unstandardized Residual 36 .332 .393 -.055 .768

Valid N (listwise) 36