The Effect of Profitability and Leverage Ratio on Stock Returns in Food and Beverage Companies in Indonesia

Oct 13, 2025 by miodeya.com 105 views

The Effect of Profitability and Leverage Ratio on Stock Returns in Food and Beverage Companies in Indonesia

Introduction

The food and beverage industry in Indonesia is a highly competitive market with numerous local and international players. The industry's profitability and leverage ratio are crucial factors that affect stock returns. However, the relationship between profitability, leverage, and stock returns in food and beverage companies listed on the Indonesia Stock Exchange (IDX) is not well understood. This study aims to reveal the effect of profitability and leverage ratio on stock returns in food and beverage companies in Indonesia.

Literature Review

Previous studies have shown that profitability and leverage are significant factors that affect stock returns in various industries. However, the food and beverage industry is unique due to its high competition, fluctuations in raw material prices, and changes in consumer trends. These factors can affect the profitability and leverage of food and beverage companies, which may not be reflected in their stock returns.

Profitability and Stock Returns

Profitability is a critical factor that affects stock returns. Companies with high profitability tend to have higher stock returns. However, the relationship between profitability and stock returns is not always linear. Other factors such as leverage, market trends, and company strategies can also affect stock returns.

Leverage and Stock Returns

Leverage is another critical factor that affects stock returns. Companies with high leverage tend to have higher stock returns. However, excessive leverage can increase the risk of default and affect stock returns negatively.

Methodology

This study uses a quantitative approach with a sample of 16 food and beverage companies listed on the IDX. The data used is secondary data obtained from the IDX website. The data analysis process begins with classic assumptions testing and followed by hypothesis testing. The research hypothesis was tested using multiple linear regression analysis, T-test, and F-test.

Results

The results of this study show that profitability and leverage do not have a significant influence on stock returns, both partially and simultaneously, in food and beverage companies listed on the IDX. The adjusted R-Square value is -0.028 or -2.8%, which indicates that the variation of stock returns can only be explained at 2.8% by profitability and leverage variations, while the remaining 102.8% is explained by other factors.

Discussion

The results of this study are quite surprising because in general, profitability and leverage are considered as important factors that affect stock returns. Some other factors that might explain the low influence of profitability and leverage on food and beverage companies in Indonesia include:

High Competition

The food and beverage industry in Indonesia is very competitive with numerous local and international players. This makes the company's profitability and leverage more sensitive to market dynamics.

Fluctuations of Raw Material Prices

Prices of main raw materials such as sugar, flour, and cooking oil often experience significant fluctuations, which can affect the profitability and leverage of the company.

Changes in Consumer Trends

Consumer demand for food and beverage products is very easy to change, so companies need to adapt quickly to maintain profitability.

The Role of External Factors

External factors such as macroeconomic conditions, government policies, and the COVID-19 pandemic can also affect food and beverage company stock returns.

Recommendation

Although profitability and leverage do not have a significant influence on stock returns, food and beverage companies still need to pay attention to these two aspects to achieve optimal performance. Some recommendations that can be applied are:

Improving Operational Efficiency

Companies need to focus on increasing operational efficiency to reduce production costs and increase profitability.

Strengthening Risk Management

Companies need to have a good risk management strategy to anticipate fluctuations in raw material prices and changes in consumer trends.

Building Competitive Advantage

Companies need to build competitive advantage through product innovation, proper marketing strategies, and strong brand development.

Utilizing Technology

Companies can use technology to improve operational efficiency, strengthen risk management, and build closer relationships with consumers.

Conclusion

This study shows that profitability and leverage do not have a significant influence on stock returns in food and beverage companies listed on the IDX. This indicates that other factors may play a role in determining stock returns, such as external factors, market trends, and company strategies. Food and beverage companies need to continue to adapt to market dynamics and develop appropriate strategies to achieve optimal performance.

Limitation

This study has some limitations. The sample size is relatively small, and the data used is secondary data obtained from the IDX website. Future studies can use a larger sample size and primary data to provide more accurate results.

Future Research

Future studies can investigate the relationship between profitability, leverage, and stock returns in other industries. Additionally, future studies can explore the role of external factors such as macroeconomic conditions, government policies, and the COVID-19 pandemic on stock returns in food and beverage companies.

References

[1] [Author's Name]. (Year). Title of the article. Journal Name, Volume(Issue), pp-pp.
[2] [Author's Name]. (Year). Title of the article. Journal Name, Volume(Issue), pp-pp.
[3] [Author's Name]. (Year). Title of the article. Journal Name, Volume(Issue), pp-pp.

Note: The references should be in the format of APA or MLA style, depending on the required citation style.
Q&A: The Effect of Profitability and Leverage Ratio on Stock Returns in Food and Beverage Companies in Indonesia

Introduction

In our previous article, we discussed the effect of profitability and leverage ratio on stock returns in food and beverage companies listed on the Indonesia Stock Exchange (IDX). The study found that profitability and leverage do not have a significant influence on stock returns, both partially and simultaneously, in food and beverage companies listed on the IDX. In this Q&A article, we will answer some of the frequently asked questions related to the study.

Q1: What are the key findings of the study?

A1: The study found that profitability and leverage do not have a significant influence on stock returns, both partially and simultaneously, in food and beverage companies listed on the IDX. The adjusted R-Square value is -0.028 or -2.8%, which indicates that the variation of stock returns can only be explained at 2.8% by profitability and leverage variations, while the remaining 102.8% is explained by other factors.

Q2: What are the possible reasons for the low influence of profitability and leverage on stock returns?

A2: The possible reasons for the low influence of profitability and leverage on stock returns include high competition, fluctuations of raw material prices, changes in consumer trends, and the role of external factors such as macroeconomic conditions, government policies, and the COVID-19 pandemic.

Q3: How can food and beverage companies improve their profitability and leverage?

A3: Food and beverage companies can improve their profitability and leverage by improving operational efficiency, strengthening risk management, building competitive advantage, and utilizing technology.

Q4: What are the implications of the study for investors and policymakers?

A4: The study has implications for investors and policymakers. Investors should consider other factors such as external factors, market trends, and company strategies when making investment decisions. Policymakers should consider the impact of their policies on the food and beverage industry and the stock market.

Q5: What are the limitations of the study?

A5: The study has some limitations. The sample size is relatively small, and the data used is secondary data obtained from the IDX website. Future studies can use a larger sample size and primary data to provide more accurate results.

Q6: What are the future research directions?

A6: Future studies can investigate the relationship between profitability, leverage, and stock returns in other industries. Additionally, future studies can explore the role of external factors such as macroeconomic conditions, government policies, and the COVID-19 pandemic on stock returns in food and beverage companies.

Q7: What are the practical implications of the study for food and beverage companies?

A7: The study has practical implications for food and beverage companies. Companies should focus on improving operational efficiency, strengthening risk management, building competitive advantage, and utilizing technology to improve their profitability and leverage.

Q8: How can investors use the study to make informed investment decisions?

A8: Investors can use the study to make informed investment decisions by considering other factors such as external factors, market trends, and company strategies when making investment decisions.

Q9: What are the policy implications of the study for the government?

A9: The study has policy implications for the government. The government should consider the impact of their policies on the food and beverage industry and the stock market.

Q10: What are the future directions for research on the relationship between profitability, leverage, and stock returns?

A10: Future research directions include investigating the relationship between profitability, leverage, and stock returns in other industries, exploring the role of external factors such as macroeconomic conditions, government policies, and the COVID-19 pandemic on stock returns in food and beverage companies, and using primary data to provide more accurate results.

Conclusion

In conclusion, the study found that profitability and leverage do not have a significant influence on stock returns, both partially and simultaneously, in food and beverage companies listed on the IDX. The study has implications for investors and policymakers, and future research directions include investigating the relationship between profitability, leverage, and stock returns in other industries and exploring the role of external factors on stock returns in food and beverage companies.