AN EMPIRICAL ANALYSIS OF PROFITABILITY AND FINANCIAL DISTRESS ON STOCK RETURNS: A STUDY OF NON-FINANCIAL SERVICE FIRMS IN THE IDX

Abstract

This study analyzes the effect of Net Profit Margin (NPM), Return on Investment (ROI), and financial distress on stock returns of non-financial service companies listed on the Indonesia Stock Exchange (IDX) during the period 2020–2024. Using a quantitative approach with Random Effect Model (REM) panel data regression, data was taken from the annual financial reports of 53 companies selected through purposive sampling, resulting in 265 observations. The results showed that NPM had a significant positive effect on stock returns. Conversely, ROI had no significant effect. Financial distress, measured by the Altman Z-score, had a significant negative effect. Simultaneously, NPM, ROI, and financial distress had a significant effect on stock returns, with an Adjusted R² of 0.871, indicating that 87.1% of the variation in stock returns can be explained by these variables. This study provides an empirical contribution to the financial literature and a reference for investors, management, and regulators in strategic decision making.