Unpacking the Role of Profitability and Solvency in Stock Price Dynamics: Evidence from Indonesia's FMCG Sector

Abstract

This study investigates the association between stock prices with profitability and solvency ratios in Fast Moving Consumer Goods (FMCG) companies listed on the Indonesia Stock Exchange by analyzing the influence of these factors both partially and simultaneously. Employing a quantitative approach, Return on Equity (ROE) and the Debt to Equity Ratio (DER) were designated as independent variables, while stock price as the dependent variable. A selection process resulted in 6 companies, providing a total of 60 observations. Data analysis employed Panel Data Regression, using the Chow Test, Hausman Test, and Lagrange Multiplier Test to determine the most appropriate model among the Common Effect, Fixed Effect, and Random Effect models. Subsequently, t-tests were used to analyze the influence of individual variables, while F-tests evaluated their simultaneous impact. The study findings reveal a significant positive effect of ROE, whereas DER shows a significant negative effect. The model declares 27.82% of the fluctuations in stock prices, and 72.18% of the factors surrounding those underlying variables are also affected. These outcomes that encourage corporate profitability and debt financing decisions are key factors in explaining stock price fluctuations among FMCG companies