JDA Jurnal Dinamika Akuntansi

Vol. 15, No. 1, March 2023, pp. 35-51

p-ISSN 2085-4277 | e-ISSN 2502-6224
http://journal.unnes.ac.id/nju/index.php/jda

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and

Firm Size Matter?

Siti Nur Aini1, Adib Minanurohman2, and Nurul Fitriani3

Accounting Department, Faculty of Economics and Business, Universitas Airlangga

1,2,3

Jl. Airlangga No.4-6, Airlangga, Kec. Gubeng, Kota Surabaya, Jawa Timur, 60115, Indonesia

DOI: http://dx.doi.org/10.15294/jda.v15i1.40072

Submitted: November 10th, 2022 Revised: December 8th, 2022 Accepted: February 24th, 2023 Published: March 14th, 2023

Abstract
Research purposes: This study aims to examine the relationship between financial ratios (Liquidity
Ratio, Solvability Ratio, Profitability Ratio, Cash Ratio) and stock price, and we further test the vari-
ables in the subsamples of loss or profit and the firm size.
Methods: This study used non-financial companies listed on Indonesia Stock Exchange (IDX) from
2010-2020 by using OLS with a cluster by the firm in Stata 17.0 to predict the relationship between
financial ratios and stock price.
Findings: The result shows that liquidity ratio, profitabilitas ratio, and cash ratio used in this study
are positively associated with the stock price, but the solvability ratio is negatively associated with
the stock price. Furthermore, in the subsample of companies that experience losses, only a few solv-
ability ratio, profitability ratio, cash ratio have a relationship with stock prices. Then, the companies
that have a small size show an insignificant liquidity ratio. This result is robust using coarsened exact
matching (CEM).
Novelty: The results add to the literature regarding the ability of financial ratios to stock prices and
especially provide new evidence from loss or profit and the firm size in Indonesia.

Keywords: Financial Ratios, Stock Price, Loss, Firm Size, Indonesia

How to cite (APA 7th Style)

Aini, S. N., Minanurohman, A., & Fitriani, N. (2023). Fundamental Analysis of Financial Ra-
tios in Stock Price: Do Loss and Firm Size Matter?. Jurnal Dinamika Akuntansi, 15(1), 35-51.

INTRODUCTION
The more people who believe in a company, the greater the desire to invest in the company,
so the trust of investors or potential investors becomes very important for the company (Saleh,
2012). But market supply and demand cause stock price fluctuations. The demand for shares is
the investor’s expectation of the company issuing the shares. According to (Darmayasa et al.,
2014), one factor that influences stock price fluctuations is the announcement of the company’s
financial statements. This is because the information in the company’s financial statements will
be beneficial for investors to review the performance of a company by looking at financial ratios
as an investment evaluation tool (Sholichah et al., 2021). The better financial performance of

author ()
E-mail: nurul.fitriani-2021@feb.unair.ac.id
a company, the higher the expectations of investors (Widayanti & Colline, 2017). This causes
the stock to be more attractive and the stock price to be higher. Conversely, if the financial
performance of a company is not good, then investors’ expectations will be low, so investors are
not interested in investing in these shares. This makes the stock price go down.
The company’s financial performance can be done by analyzing the financial statements.
One form of financial statement analysis is to analyze financial ratios. Some of the most common
financial ratios are liquidity ratios, solvency ratios, and profitability ratios. Financial ratio is a
number that shows the relationship between an element with other elements in the financial
statement (Sari, 2018). This ratio will be able to explain or give an overview about the good or bad
financial position of a company.
Previous research was conducted by (Putri & Pratiwi, 2022) on consumer goods sector
companies during the 2013-2016 period, which were listed on the Indonesia Stock Exchange
which had the result that the fundamental variables were shown in the financial ratios Earning
Per Share, Debt to Equity Ratio, Return On Equity, Return On Assets simultaneously significant
effect on changes in stock prices. Furthermore, research by (Sholichah et al., 2021) on consumer
goods sector companies during the 2011-2018 period listed on the Indonesia Stock Exchange had
the result that profitability, solvency, and dividend policy each affected changes in stock prices. In
contrast, profitability and solvency do not affect dividend policy. Results are similar to research
conducted by (Wijaya & Yustina, 2017) on banking sector companies during the 2010-2014
period and the study shown by (Ligocká & Stavárek, 2019) on consumer goods sector companies
during the 2005-2015 period, which were listed on the European Stock Exchanges.
However, companies that experience losses and small companies tend to have higher
financial risks, thus influencing decision-making that leads to the company’s sustainability goals.
This is because companies in a loss position tend to have low liquidity, poor money circulation,
and other financial problems (Kettunen et al., 2021). So it is necessary to examine the financial
ratios to stock prices in companies that experience losses and small companies. This research is
essential so that investors and potential investors have material considerations in investing in
companies with losses and small companies.
Based on the literature gap, this study examines the relationship between financial ratios
and stock prices using data on non-financial companies on the Indonesia Stock Exchange (IDX)
for the 2010-2020 period. And is the relationship still the same when the company’s status is
profitable or loss. Then, this paper examines the relationship in a subsample of large and small
companies. In addition, this study uses coarsened exact matching (CEM) to validate the research
results.
The results showed that the liquidity, profitability, and cash ratios used in this study were
positively related to stock prices. In contrast, the solvency ratios were negatively related to stock
prices. These results indicate that the company’s performance as represented by financial ratios
relates to stock prices. Furthermore, in the sub-sample of companies that experienced losses, only
the solvency ratio, profitability ratio, and cash ratio had a relationship with stock prices. Then,
companies that have a small size show an insignificant liquidity ratio. These results are robust
using coarsened exact match (CEM).
The remainder of this paper is organized as follows. Section 2 explains the literature review
and hypothesis development. Section 3 provides the research methodology. Section 4 contains
the result and discussion, while Section 5 delivers the conclusion.

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

This study wants to explain the relationship between financial ratios and stock prices using
signaling theory. Signaling theory is useful for describing behavior when two parties (individuals
or organizations) have access to different information (Connelly et al., 2011). Typically, one party,
the sender, must choose whether and how to communicate (or signal) that information, and the
other party, the receiver, must choose how to interpret the signal. By using this theory, this study

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36 Vol. 15, No. 1, March 2023, pp. 35-51
wants to explain how financial ratios provide a signal to stock prices, which means that through
these financial ratio users can study and make decisions going forward
According to (Darmadji & Fakhruddin, 2001), stock prices are formed because of the
demand and supply of shares. This demand and supply occur because of many factors, both
specific to the stock and macro one, such as the country’s economic conditions, social and political
conditions, as well as developing information. The stock price is the current buying and selling
price in the securities market which is determined by market forces in the sense that it depends
on the forces of supply and demand.
Stock prices can also be interpreted as prices formed from interactions between sellers and
buyers of shares against the background of their expectations of company profits. The closing stock
price (closing price) is the price asked by the seller or the last trading price of a period. The share
price is the price or value of money that is willing to be issued to acquire shares (Widoatmodjo,
2009). Stock price is the present value of cash flows that will be received by shareholders in the
future. According to (Anoraga & Pakarta, 2015) “share price is the money spent to obtain proof
of participation or ownership of a company”. Stock prices can also be interpreted as prices formed
from the interaction of sellers and buyers of shares against the background of their expectations
of company profits, for that investor need information related to the formation of these shares in
making decisions to sell or buy shares.
Stock price is the present value of cash flows that will be received by shareholders in the
future. According to (Anoraga & Pakarta, 2015) “share price is the money spent to obtain proof
of participation or ownership of a company”. Stock prices can also be interpreted as prices formed
from the interaction of sellers and buyers of shares against the background of their expectations
of company profits, for that investor need information related to the formation of these shares in
making decisions to sell or buy shares.
Liquidity according to (Gitman, 2009), shows the company’s ability to meet short-term
financial obligations on time or the company’s ability to provide cash or cash equivalents, which
is indicated by the number of current assets. These assets are easily converted into cash, including
cash, securities, receivables, and supplies. Company liquidity is often measured using the current
ratio, which shows the company’s ability to finance its operations and pay off its short-term
obligations. The higher the company’s liquidity, indicating that the company’s ability to pay the
short-term debt is also increased so that it can attract investors and potential investors to invest
because in this condition the company is performing well (Öztürk, 2017). Research by (Nanang
Suryana & Sri Dewi Anggadini, 2020) and (Dadrasmoghadam & Mohammad Reza Akbari, 2015)
examines various financial factors, including liquidity ratios that have an impact on changes
in stock prices in a company. This paper assumes that having good liquidity will increase stock
prices. Therefore, the first hypothesis is made as follows:
H1: Liquity ratios have a significantly positive association with the stock price
Furthermore, regarding the solvency ratio, namely the ratio that assesses the company’s
ability to pay off all of its obligations, both in the short and long term with guaranteed assets
or assets owned by the company so that the company is liquidated or closed. One ratio that
represents solvency is the debt to equity ratio (DER). The DER ratio measures the percentage of
the use of funds originating from creditors. According to (Nalurita, 2015), some investors observe
that the company will need a loan to develop its business in the form of additional funds to fulfil
its financing so it will require a lot of operational funds, which cannot be met only from the
company’s capital. Creditors prefer a low debt ratio because the lower the debt g ratio, the greater
the protection the creditor will receive (Widayanti et al., 2009). The higher the company’s funding
through debt, the higher the risk of bankruptcy. This will make investors risky in the company
(Sholichah et al., 2021). In research conducted by (Sholichah et al., 2021), (The et al., 2022), and
(Nalurita, 2015), the results show that the solvency ratio affects stock prices. Therefore, this paper
suspects that when the company’s solvency ratio tends to be high, it will lower the stock price.

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 37
Thus, the second hypothesis is made as follows:
H2: Solvability ratios have a significantly negative association with the stock price
According to (Soebiantoro, 2007), profitability is a company’s ability to generate profits or
profits for one year. According to (Indrawati and Suhendro, 2006), profitability is a company’s
ability to earn profits. Profitability shows the company’s success in generating company profits.
According to (Gitman, 2009), profitability is the relationship between income and costs caused
by using current and fixed company assets in production activities. According to (Gitman, 2009),
there are many ways to measure profitability. These various measurements allow analysts to
evaluate a company’s profit in terms of sales, assets or owner investment. With profit, companies
can attract external capital sources to invest their funds in the company. Profitability is the
company’s ability to generate earnings for one year and is calculated by return on equity. The
increase in ROE shows that the company has good performance because it is considered capable
of generating profits. Increasing stock returns will attract investors and potential investors to buy
company shares (The et al., 2022). In research conducted by (Hardiningsih et al., 2002) (Nalurita,
2015), and (The et al., 2022), the results show that the profitability ratio affects stock prices. This
article surmises that a high profitability ratio will also increase the stock price. Therefore, the
third hypothesis is made as follows:
H3: Profitability ratios have a significantly positive association with the stock price
Lastly, this paper also wants to investigate stock prices based on how the company’s cash
flows. The cash flow ratio or cash flow ratio is a mathematical equation used to determine the
financial condition of a business (Bartram, 2007). The cash flow ratio is beneficial when trying to
understand a company’s profits and losses. The cash flow ratio is significant for business financial
analysis. Each ratio reveals a certain financial aspect of the company. When using cash flow ratios,
a business knows how much cash it has, where the money is going, and what needs to be done to
maintain a balanced budget. Using cash ratios in fundamental analysis can provide insight into
sources and components of exposure to financial risk (Koijen & Nieuwerburgh, 2011). So when
the cash ratio is high, the company is considered capable of maintaining a balanced budget in
obtaining profits. As a result, increasing stock returns will attract investors and potential investors
to buy company shares (Martani & Khairurizka, 2009). This study believes that this cash ratio has
a positive relationship with stock prices, so the fourth hypothesis is as follows:
H4: Cash ratios have a significantly positive association with the stock price

METHODS
Sample Selection and Data Resource
The population used in this study are companies from all industries other than finance,
insurance, and real estate, which are listed on the Indonesia Stock Exchange (www.idx.co.id)
during the 2010-2020 period. The reason for excluding companies with SIC (Standard Industrial
Classification) code number 6 from the sample is that they have different characteristics from

Table 1. Sample Selection

Descriptions Sample Size
The total observed population of the research (2010-2020) 7,443
(-) Financial Firms with SIC 6 (1,485)
(-) Missing data for Stock Price (1,763)
(-) Missing data for Independent Variables (309)
(-) Missing data for Controls Variables (516)
The Total Final Sample Size (N) 3,370

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Table 2. Sample Distribution by SIC and YEAR
SIC YEAR
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total
0 11 11 12 13 14 15 15 13 13 94 11 222
1 28 33 38 45 45 44 45 46 48 51 40 463
2 74 75 83 85 89 89 89 90 88 90 89 941
3 51 57 58 60 64 64 65 58 61 62 41 641
4 25 26 34 40 42 43 45 47 48 49 46 445
5 24 26 27 31 34 34 34 33 37 33 29 342
7 17 19 19 20 22 24 25 25 28 26 25 250
8 1 3 4 4 6 7 8 7 8 8 10 66
Total 231 250 275 298 316 320 326 319 331 413 291 3370

other industries (Harymawan et al., 2020). Moreover, the purpose excludes the financial industry
from the sample so that the research conducted can be more comparable (Sánchez & Yurdagul,
2013).
This study obtained a total population of 7,443 observation for the last 11 years, and after
deducting the companies with SIC code 6 and some missing dependent, independent, and control
variables, the final sample was 3,370 observation. Details of sample selection are shown in table
1. Furthermore, in table 2, it can be seen the distribution of samples based on the SIC code of the
company or company sector and year. It can be seen that every year the sample of companies has
increased. The lowest value was in 2010 with a total sample of 231, and the highest value was in
2019 with a sample size of 413.
Variable Definition
This study used the dependent variable stock price taken from the Osiris database to find
out what the stock price is at the year end. In addition, financial ratio data such as liquidity ratio,

Table 3. Variable Definition

Variable Definition Sources
Dependent:
STOCKPRICE Stock price at year end Osiris
Independent:
CURRENT Current Assets/Current Liabilities Osiris
LIQUIDITY (Current Assets-Inventory)/Current Liabilities Osiris
DER Total Debt/Total Equity Osiris
ROE Net Income/Total Equity Osiris
CASHTA Cash and Equivalent/Total Assets Osiris
CFO Net Cash from Operating Activities/Total Assets Osiris
Controls:
BOARDSIZE Natural logarithm of total board size Annual Report
INDCOMSIZE Percentage total independent commissioner Annual Report
FIRMSIZE Natural logarithm total assets Osiris
FIRMAGE Firm age from date IPO Osiris
BIG4 Dummy 1 if company’s auditor big 4, 0 otherwise Annual Report
MTB Market to book value Osiris
LOSS Dummy 1 if company loss, 0 otherwise Osiris

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 39
solvency ratio, profitability ratio, and cash ratio are also taken from Osiris. As for some data
on control variables, such as company size, independent commissioners, and big 4, it is done
manually by hand collecting from the annual report. The company's stock price measures stock
price at the end of the year on December 31 each year (Sholichah et al., 2021)(Nalurita, 2015).The
definition of variables in this study in detail can be seen in table 3.
Model Specifications
Analysis technique used in this research includes the use of a descriptive statistics test,
matrix correlation test, and least square regression analysis test. Before running the data, each
variable used in the data needs to be winsorized because the data distribution in this research
might have the possibility of having a massive number outlier. Winsorizing the data only changes
the behavior of data and eliminates the problem caused by outlier data such as biased data, bad
data transcription, and many more (Reifman & Garrett, 2010). This test was done after winsorizing
the data for 1% and 99%. This study is winsorizing for all control variables except the dummy
variable to overcome the outliers in the data distribution. The regression model used in this study
is a regression using clustering by the firm that aim to collect data that are similar to each other
and different from other data and combine the standart error (Petersen, 2009) in Stata 17.0. The
following is the equation model in this study:
STOCKPRICEi,t = β0 + β1CURRENTi,t + β2LIQUIDITYi,t + β3DERi,t + β4ROEi,t + β5CASHTAi,t +
β6CFOi,t + β7BOARDSIZEi,t + β8INDCOMSIZEi,t + β9FIRMSIZEi,t + β10FIRMAGEi,t + β11LOSSi,t +
β12BIG4i,t + β13MTBi,t + β14LOSSi,t + INDUSTRYi,t + YEARi,t + ε………...............................................(1)

RESULTS AND DISCUSSION

Descriptive Statistics and Univariate Analysis
Table 4 shows the descriptive statistical results of all the variables used in this study. The
result can be seen that the highest stock price is Rp 83.800 and the lowest is Rp 7.444, with an
average of 1738.54. Meanwhile, the current ratio and liquidity which represent the liquidity ratio
have an average of 3,712 and 2,132, respectively. The solvency ratio represented by the debt-to-
equity ratio has an average of 1,875. Meanwhile, the average ROE is -0.033. The last two dependent
variables, namely cash and equivalent to total assets, and cash flow from operating divided by
total assets, have an average of 0.104 and 0.065, respectively.
Furthermore, in table 5, it can be seen that there is a univariate relationship between one
Table 4. Descriptive Statistics
Mean Median Minimum P25 P75 Maximum
STOCKPRICE 1738.540 467.658 7.444 175.000 1330.000 83800.000
CURRENT 3.712 1.430 0.013 1.005 2.366 2726.489
LIQUIDITY 2.132 0.952 0.002 0.557 1.619 885.079
DER 1.875 0.914 -166.972 0.427 1.741 786.931
ROE -0.033 0.064 -326.921 0.002 0.147 183.744
CASHTA 0.104 0.066 0.000 0.026 0.144 0.966
CFO 0.065 0.054 -0.861 0.006 0.117 1.127
BOARDSIZE 2.132 2.079 1.099 1.946 2.398 3.332
INDCOMSIZE 0.377 0.333 0.000 0.333 0.500 3.000
FIRMSIZE 27.881 28.247 15.716 26.883 29.473 33.495
FIRMAGE 2.471 2.708 0.000 1.946 3.135 3.784
BIG4 0.392 0.000 0.000 0.000 1.000 1.000
MTB 2.616 1.175 -172.657 0.623 2.592 274.821
LOSS 0.253 0.000 0.000 0.000 1.000 1.000

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Table 5. Matrix Correlation
[1] [2] [3] [4] [5] [6] [7]
[1] STOCKPRICE 1.000
[2] CURRENT -0.011 1.000
-0.535
[3] LIQUIDITY -0.014 0.964*** 1.000
-0.419 0.000
[4] DER -0.017 -0.006 -0.009 1.000
-0.322 -0.740 -0.610
[5] ROE 0.012 0.000 0.001 -0.628*** 1.000
-0.474 -0.986 -0.972 0.000
[6] CASHTA 0.100*** 0.051*** 0.106*** -0.045*** 0.022 1.000
0.000 -0.003 0.000 -0.010 -0.201
[7] CFO 0.204*** -0.009 0.002 -0.041** 0.043** 0.286*** 1.000
0.000 -0.603 -0.903 -0.018 -0.013 0.000
[8] BOARDSIZE 0.281*** -0.050*** -0.067*** -0.008 0.022 0.122*** 0.196***
0.000 -0.004 0.000 -0.636 -0.194 0.000 0.000
[9] INDCOMSIZE -0.019 0.025 0.026 -0.007 -0.014 -0.033* -0.021
-0.272 -0.146 -0.126 -0.668 -0.405 -0.053 -0.214
[10] FIRMSIZE 0.214*** -0.047*** -0.049*** 0.000 0.020 0.016 0.092***
0.000 -0.007 -0.005 -0.995 -0.240 -0.349 0.000
[11] FIRMAGE 0.124*** -0.013 -0.029* 0.019 -0.019 -0.023 0.094***
0.000 -0.462 -0.096 -0.268 -0.278 -0.181 0.000
[12] BIG4 0.202*** -0.026 -0.030* -0.017 0.010 0.092*** 0.215***
0.000 -0.125 -0.086 -0.331 -0.559 0.000 0.000
[13] MTB 0.110*** -0.005 -0.005 0.433*** -0.443*** 0.013 0.155***
0.000 -0.770 -0.792 0.000 0.000 -0.444 0.000
[14] LOSS -0.140*** 0.044** 0.046*** 0.065*** -0.059*** -0.197*** -0.238***
0.000 -0.011 -0.007 0.000 -0.001 0.000 0.000

[8] [9] [10 [11] [12] [13] [14]

[8] BOARDSIZE 1.000
[9] INDCOMSIZE -0.010 1.000
-0.575
[10] FIRMSIZE 0.463*** -0.013 1.000
0.000 -0.456
[11] FIRMAGE 0.125*** -0.018 0.036** 1.000
0.000 -0.287 -0.035
[12] BIG4 0.356*** 0.009 0.290*** 0.157*** 1.000
0.000 -0.583 0.000 0.000
[13] MTB 0.031* -0.035** 0.019 -0.008 0.049*** 1.000
-0.070 -0.042 -0.264 -0.661 -0.005
[14] LOSS -0.189*** 0.054*** -0.197*** 0.008 -0.100*** -0.004 1.000
0.000 -0.002 0.000 -0.626 0.000 -0.809
p-values in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 41
Table 6. Regression Result Liquidity Ratio to Stock Price
(1) (2)
STOCKPRICE STOCKPRICE
CURRENT 1.470*
(1.86)
LIQUIDITY 5.744*
(1.81)
BOARDSIZE 1376.428*** 1378.035***
(4.42) (4.43)
INDCOMSIZE -812.802 -820.280
(-1.08) (-1.09)
FIRMSIZE 548.740*** 550.768***
(5.78) (5.80)
FIRMAGE 485.479*** 487.116***
(6.48) (6.50)
BIG4 670.536*** 668.804***
(4.64) (4.63)
MTB 49.178*** 49.200***
(3.81) (3.81)
LOSS -843.198*** -844.988***
(-9.83) (-9.86)
_cons -1.7e+04*** -1.7e+04***
(-7.46) (-7.48)
Industry FE Yes Yes
Year FE Yes Yes
R2 0.139 0.140
R2_ Adjusted 0.133 0.133
N 3370 3370
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01
variable and one variable in the study using matrix correlation. It can be seen that the cash ratio
variables, namely CASHTA and CFO, have a univariate relationship with the dependent variable
STOCK PRICE. However, for the other ratios, there was no univariate significant relationship with
the dependent variable. Then almost all control variables in this study also showed a significant
relationship with STOCK PRICE, except INDCOMSIZE. For the liquidity ratio variable, it has a
univariate relationship with the BOARDSIZE, FIRMSIZE, and LOSS variables. Meanwhile, for
the solvency and profitability ratio, the univariately significant variables are MTB and LOSS.
Regression Analysis
Regression Result Liquidity Ratio to Stock Price
The liquidity ratio represents a ratio that is able to show the company's ability to meet
its obligations or pay its short-term debt. In this study, table 6 shows the relationship between
liquidity ratio and stock price. It can be seen in the table that the current ratio (CURRENT)
and liquidity ratio (LIQUIDITY) have a positive and significant relationship with the stock
price (STOCKPRICE) at the level of 10% (coeff = 1.470 and 5.744, t = 1.86 and 1.81). Which
means that if the Current Ratio increases it will be followed by an increase in the Stock price.

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Thus these results support the signalling theory that the actions of a firm's management provide
clues to investors about how management perceives a firm's prospects. And from these results
it can be interpreted that the company's ability to fulfill its short-term obligations actually affect
how the stock price in the company is. Which means that the more the company is able to meet
its short-term obligations, the higher the company's stock price will be. In line with research
conducted by (Nanang Suryana & Sri Dewi Anggadini, 2020)(Öztürk, 2017)(Dadrasmoghadam
& MohammadReza Akbari, 2015), which gives the result that the liquidity ratio has a positive
effect on stock price.
Regression Result Solvability Ratio to Stock Price
Furthermore, the solvency ratio explains the ratio that functions to assess the company's
ability to pay off all its obligations, both in the short and long term. This paper used the debt-
to-equity (DER) ratio to see how the amount of debt compares with equity. High DER value
indicates that the company's debt is higher than its equity. From the table 7 it can be seen that DER
has a significant negative relationship with stock prices (STOCKPRICE) at the 5% level (coeff =
-20,509, t = -2.14). This means that the higher the company's DER value, the lower the company's
stock price will be. Which means that if the Solvability Ratio increases it will be followed by an
decrease in the Stock price. These results it can be interpreted that creditors prefer a low debt ratio
because the lower the debt g ratio, the greater the protection the creditor will receive (Widayanti
Table 7. Regression Result Solvability Ratio to Stock Price
(1)
STOCKPRICE
DER -20.509**
(-2.14)
BOARDSIZE 1354.051***
(4.36)
INDCOMSIZE -804.601
(-1.07)
FIRMSIZE 554.754***
(5.85)
FIRMAGE 495.075***
(6.64)
BIG4 641.308***
(4.47)
MTB 64.382***
(5.09)
LOSS -789.874***
(-9.30)
_cons -1.7e+04***
(-7.54)
Industry FE Yes
Year FE Yes
R2 0.143
R2_ Adjusted 0.137
N 3370
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 43
 Table 8. Regression Result Profitability Ratio to Stock Price
(1)
STOCKPRICE
ROE 39.043***
(2.80)
BOARDSIZE 1365.088***
(4.40)
INDCOMSIZE -756.526
(-1.00)
FIRMSIZE 545.315***
(5.76)
FIRMAGE 491.063***
(6.58)
BIG4 657.834***
(4.57)
MTB 61.906***
(4.80)
LOSS -806.428***
(-9.47)
_cons -1.7e+04***
(-7.46)
Industry FE Yes
Year FE Yes
R2 0.142
R2_ Adjusted 0.136
N 3370
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01
et al., 2009). The higher the company's funding through debt, the higher the risk of bankruptcy.
This will make investors risky in the company (Sholichah et al., 2021). In research conducted by
(Sholichah et al., 2021), (The et al., 2022), and (Nalurita, 2015), the results show that the solvency
ratio affects stock prices.
Regression Result Profitability Ratio to Stock Price
To find out in terms of the level of profitability of the company, the return on equity (ROE)
ratio is used to measure the ability of a business entity to generate profits by capitalizing on equity
that has been invested by shareholders. From table 8 it can be seen that ROE is positively related
to STOCKPRICE at the 1% level (coeff = 39,043, t = 2.80). Which means that if the company
generates higher profits captured in ROE, the company will also have a higher stock price. Thus
these results support the signalling theory that the actions of a firm's management provide clues
to investors about how management perceives a firm's prospects. The increase in ROE shows
that the company has good performance because it is considered capable of generating profits.
Increasing stock returns will attract investors and potential investors to buy company shares (The
et al., 2022). In research conducted by (Hardiningsih et al., 2002) (Nalurita, 2015), and (The et
al., 2022),

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44 Vol. 15, No. 1, March 2023, pp. 35-51
Regression Result Cash Ratio to Stock Price
This paper is also used the cash ratio to see if the company's cash value captured from
CASHTA and CFO has a relationship with STOCKPRICE. Then, the results show that both the
cash and equivalent to total assets (CASHTA) and cash flow from operating to total assets (CFO)
ratios show a significant positive relationship at the 1% level (coeff = 3058,787 and 4845,229, t =
5.00 and 6.14). These results indicate that the higher the CASHTA and CFO values, the higher
the company's STOCKPRICE. Which means that the better the cash ratio and the company's
cash flow, the higher the value of the company's stock price. The results can be seen in table 9
below. Thus these results support the signalling theory that the actions of a firm's management
provide clues to investors about how management perceives a firm's prospects. Using cash ratios
in fundamental analysis can provide insight into sources and components of exposure to financial
risk (Koijen & Nieuwerburgh, 2011). So when the cash ratio is high, the company is considered
capable of maintaining a balanced budget in obtaining profits. As a result, increasing stock returns
will attract investors and potential investors to buy company shares (Martani & Khairurizka,
2009).
Additional Analysis
Table 9. Regression Result Cash Ratio to Stock Price
(1) (2)
STOCKPRICE STOCKPRICE
CASHTA 3058.787***
(5.00)
CFO 4845.229***
(6.14)
BOARDSIZE 1229.014*** 1250.099***
(4.06) (4.07)
INDCOMSIZE -772.176 -772.807
(-1.02) (-1.02)
FIRMSIZE 574.931*** 547.140***
(6.15) (5.76)
FIRMAGE 493.588*** 421.727***
(6.65) (5.68)
BIG4 618.047*** 507.697***
(4.27) (3.59)
MTB 48.947*** 40.936***
(3.82) (3.64)
LOSS -691.005*** -565.145***
(-7.59) (-6.29)
_cons -1.8e+04*** -1.7e+04***
(-7.90) (-7.39)
Industry FE Yes Yes
Year FE Yes Yes
R2 0.144 0.150
R2_ Adjusted 0.138 0.144
N 3370 3370
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 45
Table 10. Regression Result Financial Ratios and Stock Price Subsample Loss or Profit
Panel A: Loss Sample
(1) (2) (3) (4) (5) (6)
STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE
CURRENT -0.029
(-0.34)
LIQUIDITY 0.088
(0.25)
DER -6.067**
(-2.05)
ROE 35.086***
(3.77)
CASHTA 1907.063***
(3.08)
CFO 349.048
(1.00)
_cons -3.2e+03*** -3.2e+03*** -3.5e+03*** -3.6e+03*** -3.6e+03*** -3.1e+03***
(-3.18) (-3.17) (-3.44) (-3.49) (-3.40) (-3.17)
Controls Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
R2 0.104 0.104 0.119 0.146 0.124 0.105
R2_ 0.078 0.078 0.093 0.122 0.098 0.079
Adjusted
N 851 851 851 851 851 851
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01
Panel B: Profit Sample
(1) (2) (3) (4) (5) (6)
STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE
CURRENT 23.410**
(1.99)
LIQUIDITY 40.235***
(3.01)
DER -224.455***
(-3.41)
ROE 1.923
(0.58)
CASHTA 3156.554***
(4.27)
CFO 6044.139***
(5.98)
_cons -2.4e+04*** -2.4e+04*** -2.4e+04*** -2.4e+04*** -2.4e+04*** -2.4e+04***
(-7.35) (-7.45) (-7.47) (-7.32) (-7.68) (-7.44)
Controls Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes

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46 Vol. 15, No. 1, March 2023, pp. 35-51
 Year FE Yes Yes Yes Yes Yes Yes
R2 0.153 0.153 0.165 0.152 0.157 0.165
R2_Adjusted 0.145 0.145 0.157 0.144 0.149 0.157
N 2519 2519 2519 2519 2519 2519
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01

Regression Result Financial Ratios and Stock Price Subsample Loss or Profit
The regression equation model used in the additional analysis does not use all the
independent variables because it gives inconsistent results. This article is also performed additional
testing to see if there was a difference when firms were subsampled to firms that experienced
losses. In fact, the results find that in the sample of companies experiencing losses, the liquidity
ratio does not have a significant relationship with stock price. This of course can be explained
that if the company is on the verge of loss, it means that the company is not liquid and of course a
company with this liquidity ratio cannot explain its effect on the company's stock price. Likewise
with the cash flow ratio, the results are also not significant. This indeed indicates that when the
company suffers a loss, its cash flow may experience problems and this results in not being able
to explain its relationship with the company's stock price. These results can be seen in table 10
panel A.
For companies in the sample that experience profits, we find one difference, namely the
ROE ratio which is not significant. It can be explained that the profitability ratio covers all

Table 11. Regression Result Financial Ratios and Stock Price Subsample by Firm Size
Panel A: Big Size Firm
(1) (2) (3) (4) (5) (6)
STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE
CURRENT 169.664***
(3.01)
LIQUIDITY 47.168
(0.48)
DER -100.226***
(-3.30)
ROE 8.121
(1.41)
CASHTA 3844.775***
(2.65)
CFO 8135.194***
(5.38)
_cons -4.0e+04*** -3.9e+04*** -3.9e+04*** -3.9e+04*** -3.9e+04*** -4.0e+04***
(-5.65) (-5.70) (-5.59) (-5.57) (-5.60) (-5.76)
Controls Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
R2 0.146 0.145 0.149 0.145 0.148 0.159
R2_ 0.134 0.132 0.137 0.132 0.136 0.147
Adjusted
N 1685 1685 1685 1685 1685 1685
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 47
 Panel B: Small Size Firm
(1) (2) (3) (4) (5) (6)
STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE
CURRENT 0.228
(1.05)
LIQUIDITY 1.444
(1.20)
DER -9.992**
(-2.04)
ROE 33.597**
(2.40)
CASHTA 2241.365***
(6.05)
CFO 2364.450***
(4.04)
_cons -7.3e+03*** -7.4e+03*** -7.7e+03*** -7.5e+03*** -8.5e+03*** -7.1e+03***
(-4.67) (-4.68) (-4.86) (-4.75) (-5.25) (-4.51)
Controls Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
R2 0.157 0.157 0.167 0.170 0.176 0.175
R2_ 0.144 0.145 0.154 0.157 0.164 0.162
Adjusted
N 1685 1685 1685 1685 1685 1685
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01
company values, both those experiencing profit and loss. And when the company is split up,
only companies that experience profit are certainly not able to capture the overall ROE value of
companies associated with STOCKPRICE. Therefore, the results are not significant. These results
can be seen in table 10 panel B.
Regression Result Financial Ratios and Stock Price Subsample by Firm Size
This study performs additional analysis to see how these financial ratios are in small or
large company sizes by dividing the sample based on the median value of firm size. The results
found several differences, such as in the big size firm sample, the liquidity ratio and profitability
ratio did not show significant results. While the small size firm sample shows the current and
liquidity ratio results do not show significant results. This indicates that when considering the size
of the company, it has an impact on financial ratios on stock prices. So, when making a decision it
is important to look at the size of the company. Table 11 shows the results of the analysis of both.
Robustness Analysis using Coarsened Exact Matching (CEM)
Finally, table 12 is the results of the CEM analysis are presented to answer the problem of
endogeneity and ensure that the model built in this study remains consistent. This test is carried
out by breaking the control variable into three strata by grouping them based on the characteristics
of the independent variables. Panel A shows a summary of the observations made. It can be seen
that 1,371 of the 1,685 observations were from small company, while 1,677 from 1,685 indicated
otherwise. This paper does this division to see from the treatment group companies that are
included in the firm size sample above and below the median value. Panel B shows the results of
the CEM regression, and it can be seen that the results are robust, corroborating the results in the
main analysis.

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 Table 12. Regression Result Financial Ratios and Stock Price using Coarsened Exact Matching (CEM)
PANEL A: Matching Summary
Small Company=0 Big Company=1
All 1685 1685
Matched 1371 1677
Unmatched 314 8
PANEL B: Regression Result
(1) (2) (3) (4) (5) (6)
STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE STOCKPRICE
CURRENT 1.470*
(1.86)
LIQUIDITY 5.744*
(1.81)
DER -20.509**
(-2.14)
ROE 39.043***
(2.80)
CASHTA 3058.787***
(5.00)
CFO 4845.229***
(6.14)
_cons -1.7e+04*** -1.7e+04*** -1.7e+04*** -1.7e+04*** -1.8e+04*** -1.7e+04***
(-7.46) (-7.48) (-7.54) (-7.46) (-7.90) (-7.39)
Controls Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
R2 0.139 0.140 0.143 0.142 0.144 0.150
R2_ 0.133 0.133 0.137 0.136 0.138 0.144
Adjusted
N 3370 3370 3370 3370 3370 3370
t statistics in parentheses
* p < 0.1, ** p < 0.05, *** p < 0.01

CONCLUSION
This study aims to see the relationship between financial ratios represented by the liquidity
ratio, solvency ratio, and profitability ratio with the stock price. Using IDX data for 2010-2020
except for non-financial companies. This paper finds that there is a significant positive relationship
in all financial ratios except the solvency ratio.
The results document that the current ratio and liquidity ratio, return on equity ratio,
cash and cash flow ratio have a significant positive relationship on stock prices. This means that
the company's ability to handle liquidity problems and the level of profitability and cash flow of
the company is good, the company will be able to provide signals according to signaling theory
to increase its share price. Furthermore, the high solvency ratio or debt-to-equity ratio of the
company tends to make its ability to decline and ultimately lower its share price.
Then, this paper also tests and provide evidence on a sample of companies that suffered
losses and company size. It turned out that the results were different. This could be due to the fact
that companies that were experiencing losses experienced problems in the level of liquidity and
cash flow ratios, thus showing insignificant results. As for the size of the company, it turns out to

Siti Nur Aini, Adib Minanurohman, and Nurul Fitriani

Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 49
give mixed results. The result is validate using coarsened exact matching and find that the results
of the model in our findings are robust.
The results are in accordance with the Signaling Theory, because investors will consider
financial ratios of companies to value the stock price. Financial ratios capture the information
of the company's performance, which could give a signal to investors and this will be related
to the stock price. Therefore, all financial ratios that were tested in this study have a significant
relationship with the stock price.
This paper has several limitations. First, this paper only used one proxy to measure each
type of financial ratio. Therefore, future research can use several proxies to validate the relationship
between each type of financial ratio with stock prices. Second, this paper only uses a sample of
listed companies in Indonesia (a developing country). To get a wider picture of the relationship
between financial ratios and stock prices, future research can use samples of listed companies in
developing or developed countries.

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Fundamental Analysis of Financial Ratios in Stock Price: Do Loss and Firm Size Matter? 51