The Effect of Changes in Return on Assets, Return on Equity, and Economic Value Added to the Stock Price Changes and Its Impact on Earnings Per Share

Abstract

Along with the development of economic globalization are experiencing rapid change and development, the reality show that will affect the development of the business world. Competition between firms regional, national, and international heavier. Companies are required to be able to withstand competition in the continuity of the wheels of business. Companies are not only to be able to compete in the trade market, but also in the capital markets.

The capital market is a means to make investments that allow investors to diversify investments, forming a portfolio according to the risk they were willing to bear the expected profit rate. Investments in securities are also liquid (easily changed), therefore it is important for the company always pay attention to the interests of the owners of capital by way of maximizing the value of the company, because the value of the company is a measure of the success of the operations are financial functions.

Capital markets and securities industry is one of the indicators to assess a country's economy going well or not. This is due to the company in the stock market are large companies and credible in the country concerned, so if there is a decrease in the performance of the stock market can be said to have occurred also a decline in the performance of the real sector (Sutrisno, 2001).

In this globalization era instability Composite Stock Price Index is one example of the change in the stock price. Changes in stock prices can be affected by many factors, which may include and merger and acquisition activity, expansion, growth of the business, the expected rate, government policies, market performance, the type of shareholder, investor psychology changing between pessimistic and optimistic, as well as the country's economy (www.gthendrawinata.com). Broadly speaking, the factors that may affect the stock price can be grouped into three categories, namely: (i) external influences (supply and demand, the level of efficiency of capital markets, the level of risk, a country's inflation rate, as well as the tax rate), (ii ) behavior of investors, and (iii) the issuer's financial performance.

In this study the authors limited the problem by looking at the change in the stock price of the issuer's financial performance alone. Since the author uses fundamental analysis that focuses on the key data in the financial statements to account for whether the stock price has been in appreciation accurately.

Financial analysis is highly dependent on information provided by financial statements. The financial statements of the company is one of the important sources of information in addition to other information such as the information industry, the state of the economy, the market share of the company, the quality of management and others. There are three basic financial statements produced by a company, which includes: (i) the balance sheet (ii) cash flow statement (iii) the income statement. Besides these three basic report, produced as well as the supporting statement of retained earnings statement, changes in equity, and discussions by management. The financial information contained in the company's financial statements containing historical data that is useful in the assessment of investment analysis and forecasting. An assessment of the assets and liabilities of the company, health and financial ratios is an important input in the analysis of investment, especially in the rate of return on capital that is reflected in the stock price. There are many financial ratios can indicate the level of performance of companies such as return on assets (ROA), Return on Equity (ROE) and Economic Value Added (EVA).