Relation Between company financial condition and stock price.

During the period between January 2^nd and April 3^rd, PT. Mayora Indah, Tbk. wasn’t in a healthy financial condition. Although their production increased by 28.6% and their sales increased by 28.95%, the firm’s net income decreased by 23.9%. This was due not only to the fact that the price of raw materials during the period increased, but also to the fact that the firm found many difficulties in raising their prices. “We were just able to increase prices by around 3%-5%, the consequence is that our margin decreased,” explained Andre SukendraAtmadja, DirekturUtama MYOR (kontan.co.id; Kenaikanhargabahanbakutekanlababersih MYOR by RakaMahesa W).

During the period, the competition in the firm’s industry was tight so the firm wasn’t able to increase their prices by a large percentage. In addition, the firm had to compete with other of the same industry from abroad. For example, the ASEAN Free Trade Agreement made the firm’s industry more competitive. As aresult, net income decreased drastically.

In addition to the increase in the price of raw materials and a competitive industry, advertising and packaging expenses also had an effect on the net income. So, we can see that this company generated a growing up marketing and administrative expenses more time by time as many competitive came (as explained above).

At the moment, before entering how we can understand the relation between the stock performance of the company compared to the financial condition of the company in the same time, we need to see the sense of both of them in general picture. Such a requirement required us to seek after more specific data (new data) that depicts the financial situation of the company. LLet us see both of them: 

Stock Performance 2011

 

 

Financial Performance 2011

		First Quarter 2011	First Semester 2011	9-moth Performance
Current Ratio	Current Assets / Current Liabilities	2,89740349	2,602499332	2,938207996
Inventory Turnover	CoGS / Inventory	2,434226383	4,628826386	4,685275216
Debt Ratio	Total Debt / Total Assets	0,504243126	0,538069135	0,591555459
Equity Ratio	Total Equity / Total Assets	0,48389743	0,461930865	0,408444541
Net Profit Margin	Net Income / Net Sales	0,046163522	0,037074195	0,038500085
	First Quarter 2011	First Semester 2011	9-moth Performance
Inventory	Rp      654.829.449.729	Rp      747.986.492.966	Rp  1.184.243.288.981
Current Assets	Rp  2.541.824.812.520	Rp  2.850.256.507.292	Rp  3.258.239.630.734
Total Assets	Rp  4.301.357.512.841	Rp  4.757.318.001.555	Rp  5.377.152.404.810
Current Liabilities	Rp      877.276.782.854	Rp  1.095.199.707.563	Rp  1.108.920.687.613
Total Debt	Rp  2.168.929.956.263	Rp  2.559.765.982.723	Rp  3.180.883.857.354
Total Equity	Rp  2.081.415.846.459	Rp  2.197.552.018.833	Rp  2.196.268.547.456
Net Sales	Rp  1.961.054.250.032	Rp  4.211.272.390.648	Rp  6.643.123.850.287
CoGS	Rp  1.594.003.122.981	Rp  3.462.299.615.060	Rp  5.548.505.731.725
Net Income	Rp        90.529.171.251	Rp      156.129.535.565	Rp      255.760.832.189

At the first time, when we were trying to correlate the both of variable to become one entity that can depict the company, we acknowledge that we were so confused but after thinking deeper about both of them, we came likely to give one brief example. The major problem that we found at these data was that whenever we saw that trend line of stock price showed that it grew—that is shown in graph above—we came to financial condition that confused us that it is shown that even though the trend line is positively growing, net income ratio that shows financial condition of the company roughly showed that it was worsening in the accumulation of net profit margin. This was major problem that we found from this information, while net profit shows how the value of a firm changes positively or negatively—as shown in stock price of the company. “How could the trend line grow while net profit margin was worsening?”

After carefully seeing what happened in this company we could add some more data to try explaining them. First of all, we have to take notes that whenever we are talking about the net profit margin we have to remember that this ratio consists of two variables: Net Income (as its numerator) and Net Sales (as its denominator. So, in terms of net profit margin, we have to understand well that it is not only related to net sales, but also how we can see the way of counting net income in the company. It was so interesting that the net income of the company raised as the net sales too. So, what are the differences then?

We can see roughly that percentage of changes in net income could not go in line with the increase of net sales. So, what are the constraints then? Cost of Goods Sold. We can see that margin between net sales and CGS (as generated as gross profit) was rising more than the net income. In such a condition, we can conclude that this firm has faced big problem in generating its expenses. Thus, we can see that there is further factor than net income.

In briefest explanation, we can understand too that the rising amount of net income can generate higher value of stock price (as it was in stock price trend line) even though it was not so high. We want to ass too that this company generated so much debt (especially in the first quarter, when the company had problems with the raising up of raw material costs). In Introductory of Accountancy I, we have learned too that the company must have adjusted those debts into expenses too. So that, while the net income kept on rising, the company still adjusted debts into expenses. Thus, decrease the net profit margin of the company although the net income and trend line of company’s stock values grew up.