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STOCK VALUATION USING FREE CASH FLOW TO EQUITY (FCFE)
AND PRICE EARNING RATIO (PER)
(Study at Companies Listed on LQ-45 Index in Indonesia Stock Exchange Period
August 2017 - January 2018)
Rani Rachmawati
Nila Firdausi Nuzula
Faculty of Administrative Science
Brawijaya University
Malang
E-mail : ranirachma18@gmail.com
ABSTRAK
Valuasi saham adalah salah satu hal penting dalam berinvestasi. Tujuan dari valuasi saham adalah untuk
membantu investor meminimalkan risiko investasi melalui nilai intrinsik dalam membuat keputusan
investasi. Model evaluasi untuk menghitung nilai intrinsik dalam penelitian ini adalah analisis fundamental
dengan Free Cash Flow to Equity (FCFE) dan Price Earning Ratio (PER). Penelitian ini menggunakan
penelitian deskriptif dengan menggunakan populasi penelitian pada perusahaan yang terdaftar pada Indeks
LQ-45 di Bursa Efek Indonesia periode Agustus 2017 - Januari 2018, yang terdiri dari 45 perusahaan.
Peneliti menggunakan teknik purposive sampling dan menghasilkan 18 perusahaan sebagai sample. Hasil
menggunakan pendekatan Free Cash Flow to Equity (FCFE) menunjukkan bahwa 9 perusahaan dalam
kondisi undervalued dan 9 perusahaan dalam kondisi overvalued. Sementara, hasil menggunakan
pendekatan Price Earning Ratio (PER) menunjukkan bahwa hanya 4 perusahaan dalam kondisi undervalued
dan 14 perusahaan dalam kondisi overvalued. Rekomendasi keputusan investasi dapat diambil untuk
perusahaan dalam kondisi undervalued adalah membeli atau menyimpan saham dan rekomendasi keputusan
investasi untuk perusahaan dalam kondisi overvalued adalah menjual saham. Ada beberapa perusahaan yang
memiliki rekomendasi serupa untuk keputusan investasi dari kedua pendekatan tersebut, yaitu AKRA,
BBCA, BBRI, BMRI, KLBF, PTBA, UNTR, dan UNVR.
Kata Kunci :Valuasi Saham, FCFE, PER.
ABSTRACT
Stock Valuation is one important thing in investing. The aim is to help investors to minimize the risk of
investment through intrinsic value in making investment decisions. The evaluation model for calculate the
intrinsic value is fundamental analysis with Free Cash Flow to Equity (FCFE) and Price Earning Ratio
(PER). This research uses descriptive study using research population on companies which listed on the
LQ-45 Index in Indonesia Stock Exchange period August 2017 – January 2018, it consist of 45 companies.
Researcher using purposive sampling technique that was selected 18 companies. The results using Free
Cash Flow to Equity (FCFE) approach indicates that 9 companies in undervalued condition and 9
companies in overvalued condition. While, the results using Price Earning Ratio (PER) approach shows
that only 4 companies in undervalued condition and 14 companies in overvalued condition. The
recommendation of investment decision can be taken for companies in undervalued condition is to buy or
keep the stock and the recommendation of investment decision for companies in overvalued condition is sell
the stock. There are several companies that have similar recommendation of investment decision between
both approach, those are AKRA, BBCA, BBRI, BMRI, KLBF, PTBA,UNTR, and UNVR.
Keywords : Stock Valuation, FCFE, PER.
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
administrasibisnis.studentjournal.ub.ac.id
88
I.
BACKGROUND
The current growing economy will encourage
companies to raise funds in financing all sorts of
activities. This financing will result in changes in
the capital structure of the business entity. There
are two main alternatives financing. The first is
acquisition of new debt or the capital increase and
the other financing is by selling stocks or
ownership of a business entity.
Financing by selling stocks or ownership of
business entity can be done by companies that
have been go public. Go public is an activity of
offering stocks or other securities by issuers to the
public. This activity is conducted based on the
procedures governed by Capital Market Law and
the Implementation Ordinance (Sunariyah,
2006:32). The companies have to be listed on the
capital market to offer their securities, so investor
can do investment activities related with their
securities.
In investing activity, investor has a variety
option to choose financial instrument in capital
market such as stock and bond. Investors who
want to play safe (risk averse) usually tend to
invest their money to choose bond with certain
return. It is different with investor who interest
challenges (risk taker), they usually tend to choose
invest in common stock. Investor's interest to do
investing activity has increased especially in
stock.
Stock is one of the most popular instruments
in the capital market. Investing in stock will get
profit such as dividend and income from the
difference between the selling price of stocks and
the purchase price (capital gain). However,
investing in stock contains high risk and it is kind
of challenge for investors. Investors believe that
the higher risk will provide higher profit as well.
It is called high risk – high return, high return will
be followed by high risk too (Tandelilin, 2010:9).
One of the ways that can help Investor to
reduces or minimize the risk of investment is by
doing stock valuation. Beside reduces the risk,
investor also can determine the position of stock.
It is help in making decision of investment. So,
investor can avoid loss and optimize return of
investment.
The purpose of valuation is to determine the
intrinsic value of the stock. The intrinsic value is
the true value, this value reflects the actual stock
price of the traded stock (Jogiyanto,
2014:160).This value will help in taking the
decision to buy or sell or save the stock.
There are two analysis that are widely used
to determine the actual value of stock, that is
fundamental analysis and technical analysis
(Jogiyanto, 2014:160). Besides that, there are
several approach in stock valuation. According to
Husnan (2003:280) explain two models of stock
valuation, those are Present Value Approach and
Price Earning Ratio (PER) Approach. According
to Damodaran (2002:11) there are three
approaches to valuation, those are Discounted
Cash Flow (DFC) valuation (include Free Cash
Flow to Equity (FCFE) and Free Cash Flow to
Firm (FCFF)), relative valuation contingent claim
valuation.
This research will use fundamental analysis.
Focus of this research is using Free Cash Flow to
Equity (FCFE) and Price Earning Ratio (PER)
approaches in stock valuation methods. FCFE
used is FCFE with constant growth model. FCFE
approach is a measure of how much cash can be
paid by company to the equity stockholders of a
company after all expenses, reinvestment and
debt are paid (investopedia.com), and constant
growth model is used to value firms at the stable
growth rate (Damodaran, 2002:359). This
approach is chosen because it is a appropriate
approach that capture the true capacity to
generate cash flows for stockholder and it has
accurate indicators in calculating cash flow
received by stockholder. Besides that, the
constant growth is chosen because the companies
that will be valued is indicated have stable
growth. While, PER approach is the approach that
try to estimate stock value by multiplying earning
per share (EPS) by certain multiples (Husnan,
2003:280). This is chosen because PER is an
indicator of market confidence in the company's
growth prospects and it is the one of popular
approaches used among stock analysts and
practitioners.
This research will be conducted on companies’
stocks list in the LQ-45 index because this index
is 45 the most actively stocks traded. Stocks
selected based on the trading liquidity and market
capitalization (Jogiyanto, 2014:130). Liquidity of
stock is determined by selling and buying
transaction in capital market. The high liquidity
of stocks, indicate how often the transactions
occur on the stocks. Thus, it means that the stocks
in this index have high demand from investors.
Based on this situation, the company's stock LQ-
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
administrasibisnis.studentjournal.ub.ac.id
89
45 index becomes the object of research related to
stock valuation.
Based on the background above, this
research entitled “Stock Valuation using
Free Cash Flow to Equity (FCFE) and
Price Earning Ratio (PER) (Study at
Companies Stocks listed on LQ-45 Index in
Indonesia Stock Exchange period August
2017 – January 2018)”.
II. LITERATURE REVIEW
A. Capital Market
Capital market is a market of long-term
financial instrument, such as debt, stock,
derivatives instrument and others (Darmadji,
2008:1). According to Sunariyah (2003:4) capital
market in general is an organized financial
system. Commercial banks, all intermediary
institutions in the finance field and overall
securities include in there. While in a narrow
sense, the capital market is a place to trade stocks,
obligations, and others securities using the
services of securities brokers.
B. Investment
An investment is the commitment of funds
or invests the capital to one or more assets that
will be held over some future time period. It is
refers to investing more in assets or it is not only
one asset (Jones, 2000:3). The people who did
investment activities are investor. Investor divided
into two, there are individual investors and
institutional investors. Individual investors consist
of individual that do investment activities, while
institutional investors consist of companies that do
investment activities (Tandelilin, 2010:2).
C. Stock
Stock is an instrument that indicates an
individual or institution enclose their capital in a
company (Nasarudin, 2004:188). According to
Sunariyah,
(2003:30)
stock
are
equity
participation in the ownership of issuer. The
ownership of the stock is mean that the ownership
of company part. If the investor buys stock of a
company, the investor will be one of company
owners.
D. Stock Price Valuation
In making investment decisions, investors
need to make a valuation of the stocks to be
selected for proper investment decisions and
generate the return as expected. Stock valuation
conducted to produce information in the form of
intrinsic value. The intrinsic value of the stock
will be compared with the stock market price to
determine the position of sale or purchase of a
company's stock. Calculating intrinsic value or the
actual stock price is to avoiding loss and obtained
a satisfactory profit. Calculation model is a
mechanism to calculate company variables such
as sales, profit and dividend to be an estimate of
stock prices (Halim, 2015:4). Several analysis in
intrinsic value calculation as follows:
1. Technical analysis
Technical analysis is an analytical technique
that uses market data such as demand and
supply of the stock (Sunariyah, 2003:152).
2. Fundamental analysis
Fundamental analysis is the analysis of
stock’s value that use basic data such as
earning, sales and risk (Jones, 2000:303).
In conducting stock valuation, there are several
approaches of valuation which already explained
by experts.
1. Discounted Cash Flow (DFC)
a. Free Cash Flow to Firm (FCFF)
Free Cash Flow to Firm (FCFF) is the cash
flow after tax accumulated from business
activities of the company, minus capital
investment and net working capital (Bodie,
2014:301).
Source: Bodie (2014:301)
b. Free Cash Flow to Equity (FCFE)
Free Cash Flow to Equity (FCFE) is the
cash flow left over after meeting all
financial obligations, including debt
payments, and after covering capital
expenditure and working capital needs
(Damodaran, 2002:351).
Source: Damodaran, 2002 :252)
There are several growth models in this
approach.
Where:
�
= Risk-free rate of return
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
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90
∑
SBI = Average of interest rate of
SBI
N
=Number of month in a
year.
a. Rate of individual stock return ( � )
�
Source: Jogiyanto (2014:237)
Where:
�,� = Rate of individual stock return in
t time (month)
��
= Current stock price (closing
price)
��− = Previous stock price (closing
price)
� = Dividend in t time (month)
b. Rate of market return ( )
Souce: Jogiyanto (2014:370)
Where:
= Rate of market return in t
�,�
time (month)
= Current composite stock
�
price index
= Previous composite
�−
stock price index
c. Beta (β )
Source: Tandelilin (2010:195)
or
Source: Jogiyanto (2012:383)
Where:
��
= Beta
��,� = Covariance of securities return
and market return
� � = Variance of market return
= Rate of individual stock return
��
̅̅̅̅
= Average rate of individual
��
stock return
= Rate of market return
��
̅̅̅̅̅
= Average rate of market
��
return
d. Cost of Equity (Ke)
Source: Tandelilin (2010:197)
Where:
Ke
= Cost of equity
E � = Expected market portfolio
Return
βi
= Beta
= Risk-free rate of return
�
e. Growth rate (g)
Source: Tandelilin (2010:315)
f. Free Cash Flow to Equity (FCFE)
Source: Damodaran, 2002 :252
g. Expected Free Cash Flow to Equity
(FCFE )
Source: Gardner, McGowan, and Moeller
(2012:3)
h. Intrinsic value (Constant Growth
FCFE approach)
Source: Damodaran (2002:359)
i. Investment decision
1) Intrinsic value > market price =
“undervalued”. The decision is buy the
stock or save it.
2) Intrinsic value < market price =
“overvalued”. The decision is sell the
stock.
3) Intrinsic value = market price, the
decision can be sell or buy or save
depend on the investor condition.
1. Price Earning Ratio (PER) Approach
a. Calculate growth rate (g)
Source: Tandelilin (2010:315)
b. Calculate Earning per share (EPS)
estimation
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
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91
Source: Tambunan (2007:248)
Where:
= EPS estimation (2016)
= EPS previous year (2015)
g
= Growth rate of the company
c. Calculate Dividend per share (DPS)
estimation
The calculation of risk-free rate of return is
represented by interest rate of Bank
Indonesia Certificate (SBI). Based on the
analysis, mostly the fluctuation of risk-free
rate in Indonesia period 2013 - 2015 are
changing about 0,25%. The calculation of
risk-free rate of return period 2013-2015 is
as follows:
Source: Tambunan (2007:230)
Where:
= DPS estimation (2016)
= DPS previous year (2015)
g = Growth rate of the company
d. Calculate Expected return (k)
�
=
∑ �� SBI
Source: Tandelilin (2010:376)
f. Calculate intrinsic value (PER approach)
Source: Tandelilin(2010:377)
j. Investment decision
1) Intrinsic value > market price =
“undervalued”. The decision is buy the
stock or save it.
2) Intrinsic value < market price =
“overvalued”. The decision is sell the
stock.
3) Intrinsic value = market price, the decision
can be sell or buy or save depend on the
investor condition.
IV. RESULT AND DISCUSSION
1. Free Cash Flow to Equity (FCFE)
Approach
a. Calculate risk-free rate of return ( � )
.
= 0,005984
Where:
�
∑
N
Source: Brigham and Houston (2010:394)
Where:
k = Expected return
= DPS estimation (2016)
Po= Market price of stock (closing
price 2016)
g = Growth rate of the company
e. Calculate Price Earning Ratio (PER)
estimation
=
�
= Risk-free rate of return
SBI = Average of interest rate of
SBI
= Number of month in a year
The value of risk-free rate of return period
2013-2015 is 0,005984.
b. Rate of individual stock return ( � )
Table 1 Rate of individual stock return (�� )
period 2013-2015
No
Emiten
Code
1
2
3
4
5
6
7
8
9
ADRO
AKRA
ASII
BBCA
BBNI
BBRI
BMRI
BSDE
GGRM
�
-0,02372
0,02334
-0,00044
0,01188
0,01466
0,01656
0,00517
0,01307
0,00592
No
Emiten
Code
10
11
12
13
14
15
16
17
18
ICBP
INDF
INTP
KLBF
LSIP
PTBA
SMGR
UNTR
UNVR
�
0,01850
0,00005
0,00769
0,00858
0,00077
-0,02208
-0,00380
0,00117
0,01756
Source: Data processed by Researcher, 2017
The table shows from 18 companies,
AKRA is the company that has the highest
value. The value of AKRA reaches 0,02334.
While, the lowest value of the rate of
individual stock return is ADRO with the
value of -0,02372.
a. Rate of market return ( )
Market return is the rate of return based on
the stock price index development or Index
Ha rga Harga Saham Gabungan ( IHSG). Rate
of market return ( � ) period 2013 - 2015 is
obtained from the total � divided by the total
months in 3 years. The calculation of Rate of
market return ( � ) period 2013-2015 is as
follows:
�
=
,
= 0,00165
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
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92
The rate of market return (
2013-2015 is 0,00165.
�
period
13
14
15
Table 2 Beta (β) of the companies
Emiten
Code
1
ADRO
2
3
4
5
6
7
8
9
AKRA
ASII
BBCA
BBNI
BBRI
BMRI
BSDE
GGRM
��
-0,01926
0,87244
1,27136
0,86812
1,85551
1,61086
0,68874
2,07658
0,61090
No
Emiten
Code
10
ICBP
11
12
13
14
15
16
17
18
INDF
INTP
KLBF
LSIP
PTBA
SMGR
UNTR
UNVR
Emiten
Code
KLBF
LSIP
PTBA
No
b. Beta (β)
No
Continued Table 4
��
1,20030
0,85639
1,11005
0,93027
0,33376
0,37443
1,44543
0,31250
0,40012
Source: Data processed by Researcher, 2017
Based on the Table 4.5, the results of
the calculation show that the highest beta is
BSDE with the value of 2,07658. While,
the lowest value of beta is -0,01926 owned
by ADRO. There are 7 companies have
beta more than 1 (β>1) and 11 companies
have low risk or beta more less than 1
(β
AND PRICE EARNING RATIO (PER)
(Study at Companies Listed on LQ-45 Index in Indonesia Stock Exchange Period
August 2017 - January 2018)
Rani Rachmawati
Nila Firdausi Nuzula
Faculty of Administrative Science
Brawijaya University
Malang
E-mail : ranirachma18@gmail.com
ABSTRAK
Valuasi saham adalah salah satu hal penting dalam berinvestasi. Tujuan dari valuasi saham adalah untuk
membantu investor meminimalkan risiko investasi melalui nilai intrinsik dalam membuat keputusan
investasi. Model evaluasi untuk menghitung nilai intrinsik dalam penelitian ini adalah analisis fundamental
dengan Free Cash Flow to Equity (FCFE) dan Price Earning Ratio (PER). Penelitian ini menggunakan
penelitian deskriptif dengan menggunakan populasi penelitian pada perusahaan yang terdaftar pada Indeks
LQ-45 di Bursa Efek Indonesia periode Agustus 2017 - Januari 2018, yang terdiri dari 45 perusahaan.
Peneliti menggunakan teknik purposive sampling dan menghasilkan 18 perusahaan sebagai sample. Hasil
menggunakan pendekatan Free Cash Flow to Equity (FCFE) menunjukkan bahwa 9 perusahaan dalam
kondisi undervalued dan 9 perusahaan dalam kondisi overvalued. Sementara, hasil menggunakan
pendekatan Price Earning Ratio (PER) menunjukkan bahwa hanya 4 perusahaan dalam kondisi undervalued
dan 14 perusahaan dalam kondisi overvalued. Rekomendasi keputusan investasi dapat diambil untuk
perusahaan dalam kondisi undervalued adalah membeli atau menyimpan saham dan rekomendasi keputusan
investasi untuk perusahaan dalam kondisi overvalued adalah menjual saham. Ada beberapa perusahaan yang
memiliki rekomendasi serupa untuk keputusan investasi dari kedua pendekatan tersebut, yaitu AKRA,
BBCA, BBRI, BMRI, KLBF, PTBA, UNTR, dan UNVR.
Kata Kunci :Valuasi Saham, FCFE, PER.
ABSTRACT
Stock Valuation is one important thing in investing. The aim is to help investors to minimize the risk of
investment through intrinsic value in making investment decisions. The evaluation model for calculate the
intrinsic value is fundamental analysis with Free Cash Flow to Equity (FCFE) and Price Earning Ratio
(PER). This research uses descriptive study using research population on companies which listed on the
LQ-45 Index in Indonesia Stock Exchange period August 2017 – January 2018, it consist of 45 companies.
Researcher using purposive sampling technique that was selected 18 companies. The results using Free
Cash Flow to Equity (FCFE) approach indicates that 9 companies in undervalued condition and 9
companies in overvalued condition. While, the results using Price Earning Ratio (PER) approach shows
that only 4 companies in undervalued condition and 14 companies in overvalued condition. The
recommendation of investment decision can be taken for companies in undervalued condition is to buy or
keep the stock and the recommendation of investment decision for companies in overvalued condition is sell
the stock. There are several companies that have similar recommendation of investment decision between
both approach, those are AKRA, BBCA, BBRI, BMRI, KLBF, PTBA,UNTR, and UNVR.
Keywords : Stock Valuation, FCFE, PER.
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
administrasibisnis.studentjournal.ub.ac.id
88
I.
BACKGROUND
The current growing economy will encourage
companies to raise funds in financing all sorts of
activities. This financing will result in changes in
the capital structure of the business entity. There
are two main alternatives financing. The first is
acquisition of new debt or the capital increase and
the other financing is by selling stocks or
ownership of a business entity.
Financing by selling stocks or ownership of
business entity can be done by companies that
have been go public. Go public is an activity of
offering stocks or other securities by issuers to the
public. This activity is conducted based on the
procedures governed by Capital Market Law and
the Implementation Ordinance (Sunariyah,
2006:32). The companies have to be listed on the
capital market to offer their securities, so investor
can do investment activities related with their
securities.
In investing activity, investor has a variety
option to choose financial instrument in capital
market such as stock and bond. Investors who
want to play safe (risk averse) usually tend to
invest their money to choose bond with certain
return. It is different with investor who interest
challenges (risk taker), they usually tend to choose
invest in common stock. Investor's interest to do
investing activity has increased especially in
stock.
Stock is one of the most popular instruments
in the capital market. Investing in stock will get
profit such as dividend and income from the
difference between the selling price of stocks and
the purchase price (capital gain). However,
investing in stock contains high risk and it is kind
of challenge for investors. Investors believe that
the higher risk will provide higher profit as well.
It is called high risk – high return, high return will
be followed by high risk too (Tandelilin, 2010:9).
One of the ways that can help Investor to
reduces or minimize the risk of investment is by
doing stock valuation. Beside reduces the risk,
investor also can determine the position of stock.
It is help in making decision of investment. So,
investor can avoid loss and optimize return of
investment.
The purpose of valuation is to determine the
intrinsic value of the stock. The intrinsic value is
the true value, this value reflects the actual stock
price of the traded stock (Jogiyanto,
2014:160).This value will help in taking the
decision to buy or sell or save the stock.
There are two analysis that are widely used
to determine the actual value of stock, that is
fundamental analysis and technical analysis
(Jogiyanto, 2014:160). Besides that, there are
several approach in stock valuation. According to
Husnan (2003:280) explain two models of stock
valuation, those are Present Value Approach and
Price Earning Ratio (PER) Approach. According
to Damodaran (2002:11) there are three
approaches to valuation, those are Discounted
Cash Flow (DFC) valuation (include Free Cash
Flow to Equity (FCFE) and Free Cash Flow to
Firm (FCFF)), relative valuation contingent claim
valuation.
This research will use fundamental analysis.
Focus of this research is using Free Cash Flow to
Equity (FCFE) and Price Earning Ratio (PER)
approaches in stock valuation methods. FCFE
used is FCFE with constant growth model. FCFE
approach is a measure of how much cash can be
paid by company to the equity stockholders of a
company after all expenses, reinvestment and
debt are paid (investopedia.com), and constant
growth model is used to value firms at the stable
growth rate (Damodaran, 2002:359). This
approach is chosen because it is a appropriate
approach that capture the true capacity to
generate cash flows for stockholder and it has
accurate indicators in calculating cash flow
received by stockholder. Besides that, the
constant growth is chosen because the companies
that will be valued is indicated have stable
growth. While, PER approach is the approach that
try to estimate stock value by multiplying earning
per share (EPS) by certain multiples (Husnan,
2003:280). This is chosen because PER is an
indicator of market confidence in the company's
growth prospects and it is the one of popular
approaches used among stock analysts and
practitioners.
This research will be conducted on companies’
stocks list in the LQ-45 index because this index
is 45 the most actively stocks traded. Stocks
selected based on the trading liquidity and market
capitalization (Jogiyanto, 2014:130). Liquidity of
stock is determined by selling and buying
transaction in capital market. The high liquidity
of stocks, indicate how often the transactions
occur on the stocks. Thus, it means that the stocks
in this index have high demand from investors.
Based on this situation, the company's stock LQ-
Jurnal Administrasi Bisnis (JAB)|Vol. 57 No.2 April 2018|
administrasibisnis.studentjournal.ub.ac.id
89
45 index becomes the object of research related to
stock valuation.
Based on the background above, this
research entitled “Stock Valuation using
Free Cash Flow to Equity (FCFE) and
Price Earning Ratio (PER) (Study at
Companies Stocks listed on LQ-45 Index in
Indonesia Stock Exchange period August
2017 – January 2018)”.
II. LITERATURE REVIEW
A. Capital Market
Capital market is a market of long-term
financial instrument, such as debt, stock,
derivatives instrument and others (Darmadji,
2008:1). According to Sunariyah (2003:4) capital
market in general is an organized financial
system. Commercial banks, all intermediary
institutions in the finance field and overall
securities include in there. While in a narrow
sense, the capital market is a place to trade stocks,
obligations, and others securities using the
services of securities brokers.
B. Investment
An investment is the commitment of funds
or invests the capital to one or more assets that
will be held over some future time period. It is
refers to investing more in assets or it is not only
one asset (Jones, 2000:3). The people who did
investment activities are investor. Investor divided
into two, there are individual investors and
institutional investors. Individual investors consist
of individual that do investment activities, while
institutional investors consist of companies that do
investment activities (Tandelilin, 2010:2).
C. Stock
Stock is an instrument that indicates an
individual or institution enclose their capital in a
company (Nasarudin, 2004:188). According to
Sunariyah,
(2003:30)
stock
are
equity
participation in the ownership of issuer. The
ownership of the stock is mean that the ownership
of company part. If the investor buys stock of a
company, the investor will be one of company
owners.
D. Stock Price Valuation
In making investment decisions, investors
need to make a valuation of the stocks to be
selected for proper investment decisions and
generate the return as expected. Stock valuation
conducted to produce information in the form of
intrinsic value. The intrinsic value of the stock
will be compared with the stock market price to
determine the position of sale or purchase of a
company's stock. Calculating intrinsic value or the
actual stock price is to avoiding loss and obtained
a satisfactory profit. Calculation model is a
mechanism to calculate company variables such
as sales, profit and dividend to be an estimate of
stock prices (Halim, 2015:4). Several analysis in
intrinsic value calculation as follows:
1. Technical analysis
Technical analysis is an analytical technique
that uses market data such as demand and
supply of the stock (Sunariyah, 2003:152).
2. Fundamental analysis
Fundamental analysis is the analysis of
stock’s value that use basic data such as
earning, sales and risk (Jones, 2000:303).
In conducting stock valuation, there are several
approaches of valuation which already explained
by experts.
1. Discounted Cash Flow (DFC)
a. Free Cash Flow to Firm (FCFF)
Free Cash Flow to Firm (FCFF) is the cash
flow after tax accumulated from business
activities of the company, minus capital
investment and net working capital (Bodie,
2014:301).
Source: Bodie (2014:301)
b. Free Cash Flow to Equity (FCFE)
Free Cash Flow to Equity (FCFE) is the
cash flow left over after meeting all
financial obligations, including debt
payments, and after covering capital
expenditure and working capital needs
(Damodaran, 2002:351).
Source: Damodaran, 2002 :252)
There are several growth models in this
approach.
Where:
�
= Risk-free rate of return
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∑
SBI = Average of interest rate of
SBI
N
=Number of month in a
year.
a. Rate of individual stock return ( � )
�
Source: Jogiyanto (2014:237)
Where:
�,� = Rate of individual stock return in
t time (month)
��
= Current stock price (closing
price)
��− = Previous stock price (closing
price)
� = Dividend in t time (month)
b. Rate of market return ( )
Souce: Jogiyanto (2014:370)
Where:
= Rate of market return in t
�,�
time (month)
= Current composite stock
�
price index
= Previous composite
�−
stock price index
c. Beta (β )
Source: Tandelilin (2010:195)
or
Source: Jogiyanto (2012:383)
Where:
��
= Beta
��,� = Covariance of securities return
and market return
� � = Variance of market return
= Rate of individual stock return
��
̅̅̅̅
= Average rate of individual
��
stock return
= Rate of market return
��
̅̅̅̅̅
= Average rate of market
��
return
d. Cost of Equity (Ke)
Source: Tandelilin (2010:197)
Where:
Ke
= Cost of equity
E � = Expected market portfolio
Return
βi
= Beta
= Risk-free rate of return
�
e. Growth rate (g)
Source: Tandelilin (2010:315)
f. Free Cash Flow to Equity (FCFE)
Source: Damodaran, 2002 :252
g. Expected Free Cash Flow to Equity
(FCFE )
Source: Gardner, McGowan, and Moeller
(2012:3)
h. Intrinsic value (Constant Growth
FCFE approach)
Source: Damodaran (2002:359)
i. Investment decision
1) Intrinsic value > market price =
“undervalued”. The decision is buy the
stock or save it.
2) Intrinsic value < market price =
“overvalued”. The decision is sell the
stock.
3) Intrinsic value = market price, the
decision can be sell or buy or save
depend on the investor condition.
1. Price Earning Ratio (PER) Approach
a. Calculate growth rate (g)
Source: Tandelilin (2010:315)
b. Calculate Earning per share (EPS)
estimation
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Source: Tambunan (2007:248)
Where:
= EPS estimation (2016)
= EPS previous year (2015)
g
= Growth rate of the company
c. Calculate Dividend per share (DPS)
estimation
The calculation of risk-free rate of return is
represented by interest rate of Bank
Indonesia Certificate (SBI). Based on the
analysis, mostly the fluctuation of risk-free
rate in Indonesia period 2013 - 2015 are
changing about 0,25%. The calculation of
risk-free rate of return period 2013-2015 is
as follows:
Source: Tambunan (2007:230)
Where:
= DPS estimation (2016)
= DPS previous year (2015)
g = Growth rate of the company
d. Calculate Expected return (k)
�
=
∑ �� SBI
Source: Tandelilin (2010:376)
f. Calculate intrinsic value (PER approach)
Source: Tandelilin(2010:377)
j. Investment decision
1) Intrinsic value > market price =
“undervalued”. The decision is buy the
stock or save it.
2) Intrinsic value < market price =
“overvalued”. The decision is sell the
stock.
3) Intrinsic value = market price, the decision
can be sell or buy or save depend on the
investor condition.
IV. RESULT AND DISCUSSION
1. Free Cash Flow to Equity (FCFE)
Approach
a. Calculate risk-free rate of return ( � )
.
= 0,005984
Where:
�
∑
N
Source: Brigham and Houston (2010:394)
Where:
k = Expected return
= DPS estimation (2016)
Po= Market price of stock (closing
price 2016)
g = Growth rate of the company
e. Calculate Price Earning Ratio (PER)
estimation
=
�
= Risk-free rate of return
SBI = Average of interest rate of
SBI
= Number of month in a year
The value of risk-free rate of return period
2013-2015 is 0,005984.
b. Rate of individual stock return ( � )
Table 1 Rate of individual stock return (�� )
period 2013-2015
No
Emiten
Code
1
2
3
4
5
6
7
8
9
ADRO
AKRA
ASII
BBCA
BBNI
BBRI
BMRI
BSDE
GGRM
�
-0,02372
0,02334
-0,00044
0,01188
0,01466
0,01656
0,00517
0,01307
0,00592
No
Emiten
Code
10
11
12
13
14
15
16
17
18
ICBP
INDF
INTP
KLBF
LSIP
PTBA
SMGR
UNTR
UNVR
�
0,01850
0,00005
0,00769
0,00858
0,00077
-0,02208
-0,00380
0,00117
0,01756
Source: Data processed by Researcher, 2017
The table shows from 18 companies,
AKRA is the company that has the highest
value. The value of AKRA reaches 0,02334.
While, the lowest value of the rate of
individual stock return is ADRO with the
value of -0,02372.
a. Rate of market return ( )
Market return is the rate of return based on
the stock price index development or Index
Ha rga Harga Saham Gabungan ( IHSG). Rate
of market return ( � ) period 2013 - 2015 is
obtained from the total � divided by the total
months in 3 years. The calculation of Rate of
market return ( � ) period 2013-2015 is as
follows:
�
=
,
= 0,00165
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The rate of market return (
2013-2015 is 0,00165.
�
period
13
14
15
Table 2 Beta (β) of the companies
Emiten
Code
1
ADRO
2
3
4
5
6
7
8
9
AKRA
ASII
BBCA
BBNI
BBRI
BMRI
BSDE
GGRM
��
-0,01926
0,87244
1,27136
0,86812
1,85551
1,61086
0,68874
2,07658
0,61090
No
Emiten
Code
10
ICBP
11
12
13
14
15
16
17
18
INDF
INTP
KLBF
LSIP
PTBA
SMGR
UNTR
UNVR
Emiten
Code
KLBF
LSIP
PTBA
No
b. Beta (β)
No
Continued Table 4
��
1,20030
0,85639
1,11005
0,93027
0,33376
0,37443
1,44543
0,31250
0,40012
Source: Data processed by Researcher, 2017
Based on the Table 4.5, the results of
the calculation show that the highest beta is
BSDE with the value of 2,07658. While,
the lowest value of beta is -0,01926 owned
by ADRO. There are 7 companies have
beta more than 1 (β>1) and 11 companies
have low risk or beta more less than 1
(β