THE USE OF FINANCIAL RATIOS AS PREDICTOR OF PROFIT …

THE USE OF FINANCIAL RATIOS AS PREDICTOR OF PROFIT GROWTH ON CONSUMER GOODS MANUFACTURING COMPANY LISTED IN

INDONESIA STOCK EXCHANGE

THESIS

By

Ruth Merlin Silitonga 008200900072

Presented to

The Faculty of Economics, President University

In partial fulfillment of the requirements

for

Bachelor Degree in Economics, Major in Accounting

President University

Cikarang Baru – Bekasi

Indonesia

2013

i



THESIS

By


Presented to

The Faculty of Economics, President University

In partial fulfillment of the requirements

for

Bachelor Degree in Economics, Major in Accounting

President University

Cikarang Baru – Bekasi

Indonesia

2013

ii

PANEL OF EXAMINERS

APPROVAL SHEET

Herewith, the Panel of Examiners declares that the thesis entitled “The Use of

Financial Ratios as Predictor of Profit Growth on Consumer Goods

Manufacturing Company Listed in Indonesia Stock Exchange” submitted by Ruth

Merlin Silitonga majoring in Accounting, Faculty of Economics was assessed and

proved to have passed the Oral Examination on April 26th, 2013.

Chairman, Panel of Examiner,

…………………………………...... Dr. Sumarno Zain SE, Ak., MBA

Examiner 1

…………………………………......... Misbahul Munir MBA, Ak., CPMA

Examiner 2

……………………………………..... Drs. Umar Subandijo, MBA, Ak.

iii

SKRIPSI ADVISOR

RECOMMENDATION LETTER

This thesis entitled “The Use of Financial Ratios as Predictor of Profit Growth on

Consumer Goods Manufacturing Company Listed in Indonesia Stock Exchange”

prepared and submitted by Ruth Merlin Silitonga in partial fulfillment of the

requirements for Bachelor Degree in Economics - Major in Accounting, has been

reviewed and found to have satisfied the requirements for a thesis fit to be examined.

We therefore recommend this thesis for Oral Defense on April 26th, 2013.

Cikarang, Indonesia,April 1st, 2013

Acknowledge, Thesis Advisor,

Dr. Sumarno Zain, SE, Ak., MBA Dr. Sumarno Zain, SE, Ak, MBA Head, Accounting Study Program

iv

DECLARATION OF ORIGINALITY

I declare that this thesis entitled “The Use of Financial Ratios as Predictor of Profit

Growth on Consumer Goods Manufacturing Company Listed in Indonesia Stock

Exchange” has been originally written by myself based on my own research and has

never been used for any other purpose before. I therefore request the thesis for oral

defense.

Cikarang, Indonesia, April 1st, 2013

Researcher,


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ABSTRACT

Business is an activity which produces goods and/or services for consumer. One of the strategies to achieve business goal is by improving company performance. The evaluation of a company’s performance gives a wide-ranging impact on decision-making by the parties concerned. The ratio analysis is a widely used tool to examine company performance. The ratios can be classified into categories such as liquidity ratios, activity ratios, leverage ratios, profitability ratios, and market ratios. However, until now there is no standard form used to predict the growth in corporate profit. Thus, the author wanted to examine further the use of financial ratios as predictor of company’s profit growth. The author collected and analyzed data of 24 manufacturing companies specifically in consumer goods sector based on JASICA (Jakarta Stock Industrial Classification)index. The period of research was based on financial period of company which was ended as of December 31th, it started from year 2008 to 2011. Purposive sampling method was filtered by using some criterion such as: (1) the company published audited financial statement as of December 31th during research period, (2) the company is a go public manufacturing company listed in BEI, (3) the company is classified as consumer goods company. Dependent variable used in the research is profit growth (PG). Independent variables used are current ratio (CUR), inventory turnover ratio (ITO), debt to equity ratio (DER), return on assets ratio (ROA), and price to book value ratio (PBV). The method used to analyze the hypotheses was multiple regression analysis.

The research result showed that the use of some financial ratios such as current ratio, inventory turnover ratio, debt to equity ratio, return on asset ratio and price to book value ratio explained limited indication toward profit growth. Further test showed simultaneously these ratios have no significant effect toward profit growth. Partially only current ratio and price to book value ratio have significant effect within certain condition.

Keyword: Financial Ratios, Profit Growth, Significant effect

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ACKNOWLEDGEMENT

As I had finished the final semester and the final paper, I realized that I would

not be able to solve all problems just by myself. I praise Jesus Christ for His blessing so

I have strength and ability to accomplish my duty as a student. It is also His blessing to

surround me with people who are willing to help me especially for this last 4 years. I

would like to appreciate some people as follows:

1. Dr. Drs. Chandra Setiawan, MM., Ph.D., as Rector of President University.

Thank you for giving me a chance becomes President University student.

2. Misbahul Munir, Ak., MBA as Dean of Faculty of Economics. Thank you for

the support and valuable advice toward my learning process.

3. Dr. Sumarno Zain, SE, Ak., MBA as Head of Accounting Study Program and

thesis advisor. Thank you for the advice while I was doing my internship and

thesis.

4. Mairizal Chaidir, SE, Ak.,MComm. Thank you for sparing your time and being

kindly support me to finish this thesis.

5. Drs. Umar Subandijo, MBA. Thank you for advice and support in preparing the

thesis.

6. Ms. Tuti P., thank you for the patience while handling the administration process

since thesis preparation till graduation. I really appreciate your willingness.

7. My beloved parents, Bapak and Mamak. Thank you for your struggle and

kindness to nurture me and to let me having better education. Nothing can beat

your love for me.

vii

8. My siblings, Vero and Frans. Thank you for the cheers and fights. I am grateful

to have both of you as my sister and brother. I hope both of you become better

person each day.

9. My close friend Abung. Thank you for your presence as my buddy. I know I can

count on you.

10. My dearest friend, “Power Rangers”. Nurul, thank you for being the longest and

helpful roommate, your presence is enough to cheer me up. Pratiwi, thank you

for being a peer from time to time, every struggle we did is worthy. Resti, thank

you for being my first roommate, your maturity and kindness help me to adapt

easier. Santha, thank you for the laugh and hang out together, I hope everything

is still good as usual. I have beautiful college life with all of you.

11. Others, Ms. Anny Hutagaol, Mr. Yudi Imadudin, Mr. Alex Aritonang, Ms. Ragil

Dyah H., Ms. WinaAnnisa, Aida N., Bang Denstar Silalahi, Kak Mega Silitonga,

Desmeta Riana, Pavan C., Ahmad Morteza, Eka Kandida R., Fatimah ‘Timenk’,

and everyone who has become part of my life. I am grateful to know all of you,

as the superiors, partners, and friends because I have learned so many things

from all of you.

viii

TABLE OF CONTENTS

INSIDE TITLE .................................................................................................... i

PANEL OF EXAMINERS ................................................................................. ii

THESIS ADVISOR RECOMMENDATION ................................................... iii

DECLARATION OF ORIGINALITY ............................................................. iv

ABSTRACT ......................................................................................................... v

ACKNOWLEDGEMENT .................................................................................. vi

TABLE OF CONTENTS .................................................................................... viii

LIST OF TABLES .............................................................................................. x

LIST OF FIGURES ............................................................................................ xi

CHAPTER I INTRODUCTION

I.1 Research Background ........................................................... 1

I.2 Problem Statement ................................................................ 5

I.3 Research Scope and Limitation ............................................ 5

I.4 Research Objectives .............................................................. 6

I.5 Research Benefits ................................................................. 6

I.6 Research Method .................................................................. 7

CHAPTER II LITERATURE REVIEW

II.1 Financial Statement ............................................................. 8

II.2 Financial Statement Analysis .............................................. 13

II.3 Review of Previous Research .............................................. 22

II.4 Hypotheses .......................................................................... 25

CHAPTER III DATA PROCESSING METHOD

III.1 Research Variables and Operational Definition ................. 27

III.2 Types of Data ..................................................................... 29

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III.3 Data Collecting Method ..................................................... 30

III.4 Population and Samples ..................................................... 30

III.5 Analysis of Data ................................................................. 31

CHAPTER IV ANALYSIS AND EVALUATION

IV.1 Classical Assumption Test Result ...................................... 39

IV.2 Hypotheses Test Result ...................................................... 45

IV.3 Result Interpretation........................................................... 49

CHAPTER V CONCLUSION AND RECOMMENDATION

V.1 Conclusion ........................................................................... 53

V.2 Recommendation ................................................................. 55

BIBLIOGRAPHY ............................................................................................... 58

APPENDIX A ...................................................................................................... 60

APPENDIX B ...................................................................................................... 65

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LIST OF TABLES Table II.1 Financial Ratio Used for Research .................................................. 25

Table III.1 Variables and Operational Definition .............................................. 29

Table III.2 Durbin Watson Rule ........................................................................ 33

Table IV.1 Descriptive Statistic Result .............................................................. 41

Table IV.2 Durbin Watson Result ...................................................................... 43

Table IV.3 Tolerance and VIF Result ................................................................ 43

Table IV.4 Heterocedasticity Result .................................................................. 44

Table IV.5 Hypotheses Result ............................................................................ 45

Table IV.6 F-test Result ..................................................................................... 46

Table IV.7 T-test Result ..................................................................................... 47

Table IV.8 Summary of Hypotheses Testing Result .......................................... 49

xi

LIST OF FIGURES

Figure IV.1 Normal P-Plot .................................................................................. 40

Figure IV.2 Histogram ......................................................................................... 40

1

CHAPTER I

INTRODUCTION

I.1 Research Background

Business is an activity which produces goods and/or services for consumer. The

business owner has a goal which is to be the leader in providing such goods/services.

The business owner needs to do some strategies such as inspecting market trend,

developing the goods/services offered, and improving company performance in

providing the goods/services in order to attain the goal. The company does observation

toward market condition such as market price and economic supply & demand to

inspect market trend. To develop goods/services produced, the company surveys

customer satisfaction index and does product research & development. In improving

company performance, the company concerns on financial and managerial condition.

These three strategies must be in synergy so that the business goal can be attained.

Based on the explanation above, the most controllable strategy is to improve

company’s performance. It is controllable because the company can directly manage the

financial & managerial condition. In management, a company must remember this

adage, “You can’t manage what you don’t measure”. It means a company must have

some measurements as helping tool to decide whether something is good, bad, better, or

worse. Besides the measurement, the company also needs something to be measured.

Today, the most measurable data is number. Now, the question is what document

provides number to be measured in a company. The answer is annual financial report of

the company.

Annual financial report of the company is a summary of company’s activities

every year. In the annual financial report, the company provides financial statements

2

that described in numbers. Later, these financial statements can be used as the source of

number needed for analysis. As stated in PSAK, financial statements show what the

management have done or as management report of the usage of resource (Dewan

Standar Akuntansi Keuangan, 2009). There are some of analysis tools, one of them is

ratio analysis. The ratio analysis is a widely used tool for financial analysis. It compares

the number of one account to another. The ratios can be classified into categories such

as liquidity ratios, activity ratios, leverage ratios, profitability ratios, and market ratio

(Weaver & Weston, 2007).

The company can examine how the business operations run so far, whether it is

good or not, by analyzing the ratios. The company will know the company’s strength

and weakness at the time. It can see what possible problem and opportunity can be

arisen from such condition as described by the ratio. Later, the company’s management

can decide what action should be taken to solve the possible problem and to take

advantage of the opportunity. The action taken is then one of development step toward

better company.

Beside for the company itself, the analysis of company’s financial condition

become widely used by external parties, such as investor and creditor. In this case,

investor would use the analysis as a prediction tools. The analysis could show the

investors whether the company is a promising field as an investment or not. The

investors pay more attention to profitability subject as they expect profit in the return of

their investment. Creditors would also use the analysis as a prediction tools. Differ from

the investors, the creditors more concern on debt & solvency subject. The analysis could

show the creditor whether the company has the ability to repay the payable if someday

the company gets fund support from the creditor. The creditor, especially bank, is

supposed to help the company when support is needed, but they would not want to put a

high risk on the money because if the borrower failed to repay, a lot of people will

3

suffer the result. Another external user of the analysis is government. Government pays

attention to company’s performance in order to examine whether the company is still

able to do the operation or not. In accounting term, the ability to run the operation called

going concern. Going concern later affects some of government actions, for instance

taxation.

Based on the above explanation, it is known that the evaluation of a company’s

performance gives a wide-ranging impact on decision-making by the parties concerned,

as for that, BAPEPAM & LK published Surat Keputusan Ketua Bapepam & LK No:

KEP-134/BL/2006 which obligates every public company to report some important

financial ratios such as net profit(loss) to total asset ratio, net profit (loss) to equity ratio,

current ratio, liabilities to equity ratio, liabilities to asset ratio, loan to deposit ratio

(specifically for banking), and capital adequacy ratio(specifically for banking).

One form of performance assessments conducted by both, the company’s

management and external parties of the company is evaluating the profit growth. The

reason for using growth in profit as a measure of company’s performance because the

company maintains its existence by striving to create a profit (Fuad, 2000).Profit is a

result of financial processes that occurred in the company, in other words, profit is an

output from various inputs. Thus, inputs are the factors that affect the output obtained.

In the assessment of corporate performance, the company’s management usually uses

internal factors to predict profit growth, which are briefly represented by various

financial ratios such as the ratio of liquidity, activity, leverage, profitability, and market

ratios. However, until now there is no standard form is used to predict the growth in

corporate profit. This is because of the inconsistency on the scientific studies results

held previously due to several constraints.

In the research, Ediningsih (2001) concluded that productivity ratio represented

by CATA, investment ratio represented by CAS, the ratio of indebtedness / equity ratio

4

represented by OITL, CLI, and TLCA and profitability ratios, represented by OINBT

and EBTS have had positive influence on profit growth of manufacturing company. Zul

(2009) have a research result showed that total debt to total capital asset ratio, working

capital to net sales ratio, current ratio, return on assets ratio, gross profit to net sales

ratio, and debt to equity ratio have had an influence to profit growth of manufacturing

company.

Contrary to the previous researchers, Syamsudin and Primayuta (2009) stated

the debt to equity ratio and net profit margins did not significantly influence changes in

manufacturing profit but the current ratio and total asset turnover ratio possessed

significant influence.Dianggoro(2011) concluded that the quick ratio, total debt to total

assets ratio,total debt to total equity ratio, inventory turnover ratio, fixed assets turnover

ratio, total assets turnover ratio, return on assets ratio and return on equity ratio cannot

be used in predicting changes in profit in the future.

SW (2006) stated that the debt to equity ratio and leverage ratio, did not affect

the growth of manufacturing profit, while gross profit margin, net operating margin,

inventory turnover ratio, total asset turnover ratio, return on investment ratio, and return

on equity ratio were influential to profit growth. Prasetyo (2010) expressed a similar

thing where debt to equity ratio had no effect on profit growth, but contrary to

Suprihatmi, total asset turnover ratio in Nurdin’s research had no effect on profit

growth, followed by the current ratio and gross profit margin, the only variables that

influenced profit growth only net profit margin.

Based on the observations of previous researches, the independent variables

used consistently are the debt to equity ratio, return on assets ratio, current ratio and

inventory turnover ratio. Under applicable accounting theory, each of these ratios

represents the views of the company's performance based on leverage ratio, profitability

ratio, liquidity ratio, and the activity ratio. The samples used in this research are also

5

consistent which are the manufacturing companies listed on the Indonesia stock

exchange. This makes the writer become curious and interested in doing research on the

financial ratios influence toward the company's profit growth, specifically in

manufacturing company. The research used an additional ratio which is market ratio,

this ratio represented by price to book value ratio. This ratio is used as the current stock

assessment in assessing the performance of the company. Thus, this research entitled,

“The Use of Financial Ratios as Predictor of Profit Growth on Consumer Goods

Manufacturing Company Listed in Indonesia Stock Exchange”

I.2 Problem Identification & Statement

Based on the research background the author identified a problem which is no

standard form used for predicting profit growth. Thus, the author want to find a model

that can be used as standard form to predict profit growth of manufacturing companies.

Along with the problem identification, the author stated some questions as follow to

help determining the prediction model:

1. What is the simultaneous and partial influence of current ratio, inventory

turnover ratio, debt to equity ratio, return on assets ratio, and price to book value

ratio toward the profit growth of manufacturing companies listed on the

Indonesia stock exchange?

2. What is the possible model to predict profit growth on manufacturing companies

listed on the Indonesia stock exchange?

I.3 Research Scope and Limitation

To limit the scope of the research, the author decided to create a scope and

limitation as follow:

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1. This research used five categories of financial ratios such as the liquidity,

activity, leverage, profitability, and market ratios. Each category is represented

by one of financial ratios which are current ratio, inventory turnover ratio, debt

to equity ratio, return on assets ratio, and price to book value ratio.

Consideration for using these ratios is the availability of data disclosed on

financial statements and observations based on previous studies.

2. This is a statistic research in which the samples are some manufacturing

companies with specialty of consumer goods. The population for the research

are manufacturing companies which were grouped according to the JASICA

index (Nugraha, 2012), as for the sample, the population then filtered by some

criterion. One of the criterions is the consumer goods manufacturing companies

published audited financial statements for the period 2008-2011.

I.4 Research Objectives

In line with the problem identification, author expected this research for:

1. Determining the simultaneous and partial influence of current ratio, inventory

turnover ratio, debt to equity ratio, return on assets ratio, and price to book value

ratio toward the profit growth of manufacturing companies listed on the

Indonesia stock exchange

2. Determining the possible model to predict profit growth on manufacturing

companies listed on the Indonesia stock exchange

I.5 Research Benefits

The author hoped this research has some value and gives advantages for people

as described below:

7

1. For The Author

a. This research process is expected to widen author’s knowledge on financial

related subject and to improve author’s ability in applying lesson learned in

research

b. This research process is expected to give insight of how profit growth in

manufacturing companies can be affected by financial ratios

2. For The Stakeholder

a. This research is expected as a supporting analysis for company in using and

maintaining financial ratios to predict profit growth

b. This research is expected to be a reference for external user of financial

report in making decision.

3. For The Other

a. This research is expected as reference source for next research

b. This research is expected as an educational contribution related to the use of

financial ratios provided in the financial statements

I.6 Research Method

This research used numerical secondary data as the source of input. The method

used to collect the data was documentation. Data obtained from the Indonesia Capital

Market Directory published by Institute for Economic and Financial Research (ECFIN)

for year 2011 & 2012 and audited financial statements of companies published by the

Indonesia stock exchange via the website www.idx.co.id. Data processing done by

using statistical method to test the classical assumptions on the data used, it consisted of

normality test, autocorrelation test, multicollinearity test, and heterocedasticity test.

These testing assumptions done with the help of software SPSS v.16 and Eviews

8

v.7.After doing classical assumption testing then the author done the test of hypotheses

using F-test and t-test.

9

CHAPTER II

LITERATURE REVIEW

II.1 Financial Statement

1. Financial Statement Definition

Financial Statement is a report that provides accounting information to the user

after transactions have been recorded and summarized as described on Principles of

Accounting (Reeve, Warren, & Duchac, 2007). PSAK No.1 stated that financial

statement provided financial condition, performance, and statement of cash flow of an

entity which give advantages for a large number of users in making decision, also

financial statement showed what the management have done or as management report

of the usage of resource (Dewan Standar Akuntansi Keuangan, 2009).

In line with explanation above, Agnes Sawir in her book of “Analisis Kinerja

Keuangan dan Perencanaan Keuangan Perusahaan” described financial statements as

the ending result of accounting process. The financial statement is one of media that can

be used to examine companies healthy. It consists of Balance Sheet, Income Statement,

retained profit summary, and financial position report. (Sawir, 2005).

2. Financial Statement Objectives

SAK-UMUM stated the objectives of financial statement as follow:

To provide information of financial position, financial performance,

and cash flow statement of an entity that benefit a large number of

users in making economic decisions by anyone who is not in a

position, to ask for a special financial report to meet specific

information needs.(Dewan Standar Akuntansi Keuangan, 2009)

10

Financial statement showed the management accountability for the resources

entrusted to it. The company described economic condition in number which is stated

on Balance Sheet and Income statement. Preparation of the financial statement is

governed by specific law which is PSAK. This law ensures that the financial statement

is comparable and can be used by internal and external parties as an overview of

company’s financial condition. According to Keputusan Ketua Bapepam dan & LK

Nomor: Kep-431/BL/2012, public company is obligated to submit the annual report to

BAPEPAM & LK and also to publish it on company’s official website. This law is

intended to improve the quality of information disclosure in annual reports of public

company as a source of important information for shareholders and the public in making

investment decisions. It means, as the financial statements included in the annual report,

the purpose of it being published publicly is to help shareholder and public in making

decision.

Weaver & Weston (2007) also stated:

The financial statement provides an important measure of the

company's score…

The financial statement is also used to evaluate the performance of

the management team. Management compensation is often based on

the financial information provided by the financial statements. (p.30)

3. Financial Statement Components

The principal components of financial statement of a proprietorship are the

Income Statement, the Statement of Owner’s Equity, the Balance Sheet, and the

Statement of Cash Flow. The order in which the statements are normally prepared and

the nature of the data presented in each statement are as follow:

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a. Income Statement

A summary of the revenue and expenses for a specific period of time, such

as a month or a year

b. Statement of Owner’s Equity

A summary on the changes in the owner’s equity that have occurred during a

specific period of time, such as a month or a year

c. Balance Sheet

A list of the assets, liabilities, and owner’s equity as of a specific date,

usually at the closing date or the last day of a month or a year

d. Statement of Cash Flow

A summary of the cash receipts and cash payments for a specific period of

time, such as a month or a year

(Reeve, Warren, & Duchac, 2007)

There are two main financial statement components, Balance Sheet and Income

Statement. Statement of financial position of an entity or Balance Sheet is comprised of

the assets, liabilities, and equity at a given time. These elements can be defined as

follow:

a. Assets are resources controlled by an entity as a result of past events and

from which future economic benefits are expected to be acquired by entity

b. Liabilities are the present obligations of the entity arose from past events, the

settlement is expected to result in an outflow from the resources of entity

that contain economic benefits

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c. Equity is the residual interest in the assets of an entity after deducting all

liabilities.

(Dewan Standar Akuntansi Keuangan, 2009)

Financial performance is a relationship between income and expenses of the

entity as presented in the Income Statement. Profit is often used as a measure of

performance or as the basis for other measurements, such as return on investment or

profit per share. The elements of financial statement that are directly related to the

measurement of profit are income and expenses. Income and expenses are further

defined as follow:

a. Income is the increase in economic benefits during the reporting period in

the form of inflows or increase in assets or decrease in liabilities that result

in increase of equity that did not come from investors contribution

b. Expense, is the decrease in economic benefits during the reporting period in

the form of outflows or decrease of assets, or the occurrence of liabilities that

result in decreases in equity that are not related to distributions to investors.

(Dewan Standar Akuntansi Keuangan, 2009)

4. Financial Statement User

Parties which are interested in the financial position and the development of the

company are:

a. Company’s owner, by assessing the financial statement, the owner of the

company can assess the success or failure of managers who lead the

company, usually manager's success is measured by profit derived by an

enterprise. Because of the stability and continuity of the company depending

on how the work or the efficiency of the company, so if the outcome is

13

unsatisfactory, in this case the owner of the company will restructure its

management with the new one or even sell the shares.

b. Manager or head of the company, by studying financial statement of the

prior period, managers can plan the finance better; improve surveillance

systems and policies which are more appropriate. Things which become

management concern include: achieving high profit, working effectively and

efficiently, maintaining the assets, and structuring a healthy company’s

capital. The report is a tool for management accountability to the owners of

the company for the trust that has been given.

c. Investors, by looking at the financial statement of the company, investors

can make investment decisions. Investors want to see if the company can

provide an excellent performance and generate a good rate of returns.

d. Creditors and bankers, creditors and bankers need to learn the financial

statement before making a decision, whether to grant a loan to the company

or not. By studying the financial statement, the lender can estimate whether

the company has the ability to repay the loan, so the lender can determine

some technical terms for the purpose of the loan, such as loan repayment

period, percentage of interest on the loan, the loan terms, etc.

e. The Government concerned of company's financial statement with respect to

taxes. By looking at the financial statement, the government can look at the

company's ability to pay taxes with appropriate tax rates, thus the company

does tax and regulatory compliance. The government also plays a role in

determining decisions about minimum wage for workers, one of the

considerations to determine the extent of the government's minimum wage is

to look at the financial statement of the company. (Munawir, 2010).

14

According to Syamsudin (2009), in general, there are three groups which are

most concerned with the financial ratios, the shareholders and prospective shareholders,

creditors and potential creditors, and the company's management. Shareholder is the

company’s owner and other parties who has interest and invest in the company. The

shareholders and prospective shareholders pay attention to the level of benefits, both

current and likely level of profit in the future because it directly affects the value of the

shares that will be owned/ have been owned. The creditors interested in the company's

ability to pay financial obligations, both long term and short term. Management of

companies interested in the entire company's financial situation because the financial

statement will become an assessment for investors and creditors, achieving better

performance is also a primary goal of management because then the company may earn

more benefit.

II.2 Financial Statement Analysis

1. Financial Ratio Definition

Based on the opinion Agnes Sawir, to assess the financial condition and

achievements of the company, financial analysts need some benchmarks. Benchmark

that is often used is the ratio or index, which connects the two financial data with each

other. (Sawir, 2005).

Munawir’s opinion (2010), ratio analysis is an analysis method to determine the

relationship of certain items in the Balance Sheet or Income Statement. The ratio is

based on the data contained in the financial statements of both the Balance Sheet and

Income Statement. Both of the financial statements can be calculated using many

different types of ratios that can be used as a guide in making decisions for the

company's survival.

15

2. Financial Ratio Advantages

According Munawir (2010), the ratio describes the relationship or balance

(mathematical relationship) between a certain amount by the number of others, and by

using this ratio, the analysis will be able to explain or illustrate about the good and bad

circumstances or financial position of a company, as previously mentioned, financial

condition can be seen from the Balance Sheet and Income statement.

3. Measurement

Samuel C. Weaver stated that there are several sources that can be used as the

standard of comparison, such as:

a. The historical performance of the company, by comparing the current year

with the previous years of financial statement, the user can view the

development of the company/company’s operating fluctuations

b. The performance formed by a target or targets specified in the plan, in this

case the budget is one of the targets/goals made by management and can be

used as a comparison tool to know whether the outcome is now on target or

not.

c. One or more competitors’ information, by comparing the company's

financial statement with the financial statement of competitors, the company

can determine what are the advantages and disadvantages of the operation

which had been running.

d. Average or industry standard, the industry standard is a standard obtained

from the average of its peers, by comparing the financial ratio to the industry

16

average, the company can see what distinguished the company with other

similar companies, and what opportunities can be used.

e. A role model company, a developing company or an emerging start up

usually compares the performance with a company that had already been

experienced in the field, this was done as a motivation for the company to

achieve better things in the coming period.

(Weaver& Weston, 2007).

However, the only data of ratios that are able to be used by internal and external

parties together are the historical ratio and the ratio of its peers. Based on the opinion of

Riyanto (2001), financial analyst conducts financial ratios can basically do this in two

different ways of comparison, namely:

a. The last year ratio (historical ratio), comparing the current ratio with

previous year ratio of the same company.

b. The ratio of the average industry, comparing the ratios of a company with

ratio of other similar companies of same period.

4. Types of Financial Ratios

In the opinion of Syamsudin (2009), financial ratios can be divided into three

groups, namely: liquidity and activity ratio, debt ratio, and profitability ratio. The first

ratio is calculated based on data derived from the Balance Sheet, debt ratio based on

data derived from the Balance Sheet and Income Statement, whereas the ratio of

profitability based on data derived from the Income Statement.

In the other hand, Weaver & Weston (2007) classified the financial ratios into

some categories such as liquidity ratio, activity ratio, leverage ratio, profitability ratio,

17

and market valuation ratio. Some of the ratios which represented each category of

financial ratios described as follow:

a. Liquidity, liquidity ratio measures the company's ability to meet short-term

obligations.

Liquidity ratios that are commonly used are:

• Current Ratio

This ratio is calculated by dividing current assets by debt. The current

ratio is the measure which most commonly used to determine the ability

to meet short-term obligations, as this ratio shows how much the

demands of short-term obligations are expected to be met by the assets

into cash in the same period to maturity of debt.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Low current ratio is usually considered to be indicative of problems in

liquidity. On the other hand, a company whose current ratio is too high is

also bad idea, because it shows the number of idle funds which may

ultimately reduce the profitability of the company.

• Quick Ratio.

This ratio is calculated by subtracting inventories from current assets and

then dividing the result by debt.

𝑄𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦

Inventories are elements of current assets which has low liquidity levels,

frequently get price fluctuations, and this element of current assets is

often caused losses in the event of liquidation. So the quick ratio is the

18

better ratios to measure a company's ability to meet its short-term

obligations. Quick ratio which is generally considered to be good is 1.

b. Activity, activity ratios measure the company affectivity use of resources

It is a ratio that measures the extent to which the company's management

effectiveness in managing its assets. In this case, it is to measure the ability

of management to manage the company's inventory of raw materials, work

in process, and finished goods as well as management policies in managing

other assets and marketing policies. The ratio of activity analyzes the

relationship between Income Statement, particularly sales, and existing

elements in the Balance Sheet, particularly the elements of assets. Activity

ratio is measured in terms of the velocity of the elements associated with the

sales.

Activity ratios which commonly used are:

• Inventory Turnover Ratio

This ratio is calculated by dividing the price of goods sold by average

inventory. Meanwhile, to calculate the average inventory period is by

dividing the number of days in a year was considered to be 365 days,

with inventory turnover. One year can be assumed to be 360 days or 365

days, the second number is used in the financial sphere and the

difference will not affect the resulting decision.

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 𝑂𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 = 𝐶𝑂𝐺𝑆

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑔𝑒 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =365

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 𝑂𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜

19

This turnover indicates how many times the amount of merchandise

inventory is replaced or sold in a period. If the inventory turnover was

quick, then there is no problem for the company.

Conversely, if the inventory turnover is slow, it will impair the going

concern of the company. Due to store items will require a wide range of

costs and damages that may arise, such as building rental costs,

maintenance costs, interest costs, the cost of the fire, and others.

• Account Receivable Turnover Ratio

This ratio is calculated by dividing sales by average receivable.

𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =𝑆𝑎𝑙𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑔𝑒 𝑜𝑓 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 = 365

𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟

If the company shows higher turnover, the company has a good ratio

level. Because the funds are invested in accounts receivable was low.

Conversely, if the lower ratio means the fund is invested in higher

receivables, this is due to the credit and collection work is not effective,

or there is a change in credit policy to customers. Using the accounts

receivable turnover, the average accounts receivable collection can also

be calculated , which is by dividing the number of days in a year,

considered to be 365 days, with account receivable turnover. The longer

the collection days is, the greater the risk of uncollectible receivables.

• Total Assets Turnover Ratio

This ratio is calculated by dividing sales by average total assets.

20

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 = 𝑆𝑎𝑙𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

This ratio indicates the effectiveness of the use of all company property

in order to generate sales or how to draw the net sales dollars generated

by each dollar invested in the company property. If it is slow-moving, it

indicates that the assets owned too large compared with the ability to

sell.

c. Leverage, leverage ratios measure the extent to which the firm's assets

financed by debt.

Leverage ratios measure the solvency of a company. This ratio indicates a

company's ability to meet all its financial obligations as if the company was

liquidated. Thus, solvency means the ability of a company to pay all his

debts, both long term and short term.

Leverage ratios which commonly used are:

• Debt to Equity Ratio

This ratio is calculated by dividing total debt to total equity. This ratio

provides a benchmark of how much the proportion of the debt and equity

owned by the company to finance the company.

𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝑟𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦

This ratio shows the proportion of liabilities held and all equity owned.

The higher the percentage, the more likely the greater the financial risk

for creditors and shareholders.

• Times Interest Earned Ratio

21

This ratio is calculated by dividing net income before tax and interest

expenses.

𝑇𝑖𝑚𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑎𝑟𝑛𝑒𝑑 𝑟𝑎𝑡𝑖𝑜 = 𝐸𝐵𝐼𝑇

𝐼𝑛𝑡𝑒𝑟𝑒𝑠 𝐸𝑥𝑝𝑒𝑛𝑠𝑒

This ratio measures the ability to meet annual interest obligations with

operating profit (EBIT), the extent to which operating income may fall

without causing a failure in the fulfillment of the obligation to pay

interest on the loan.

d. Profitability, profitability ratios measure the overall effectiveness of

management in creating profit relative to sales or investment.

Profitability is the net outcome of various policy and management decisions.

Profitability ratios will provide a final answer about the effectiveness of the

company's management; this ratio gives an idea of the effectiveness of the

management of the company.

Profitability ratios which are commonly used:

• Profit Margin ratio

This ratio is calculated by dividing net income to sales. This ratio

measures the net profit after tax to sales.

𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 = 𝐸𝐴𝑇𝑆𝑎𝑙𝑒𝑠

• Basic Earning Power Ratio

This ratio is calculated by dividing net income before taxes and interest

expense by total assets. This ratio shows the ability to generate profit

from the assets of the company, before the effect of taxes and interest.

22

This ratio is useful for comparing companies with different tax situations

and different interest rates.

𝐵𝑎𝑠𝑖𝑐 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑜𝑤𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 = 𝐸𝐵𝐼𝑇


• Return on Assets Ratio

ROA is often equated with the ROI (Return on Investment). This ratio is

calculated by dividing profit before tax to total assets. This ratio shows

how much net profit to be gained from all the wealth of the company.

𝑅𝑂𝐴 = 𝐸𝐵𝑇


• Return on Equity Ratio

This ratio is calculated by dividing net income to equity. This ratio

shows the extent to which companies effectively manage their own

capital, to measure the profitability of investment owners have made on

their own capital or shareholders.

𝑅𝑂𝐸 = 𝐸𝐴𝑇

𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦

e. Market, market ratios measure the company's relationship with the stock

market. (Weaver & Weston, 2007).

Market ratio is a set of ratios which connect the company's stock price to

profit and book value per share.

General ratios used are:

• Price to Earnings Ratio

This ratio compares the price per share to earnings per share.

23

𝑃𝑟𝑖𝑐𝑒 𝑡𝑜 𝑒𝑎𝑟𝑛𝑖𝑛𝑔 𝑟𝑎𝑡𝑖𝑜 = 𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

𝐸𝑃𝑆

• Price to Book Ratio

This ratio compare the stock market value to its book value.

𝑃𝑟𝑖𝑐𝑒 𝑡𝑜 𝑏𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑟𝑎𝑡𝑖𝑜 = 𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

Slamet Munawir stating the purpose of each analyzer is generally to determine

the level of profitability, solvency and liquidity of the company concerned. And based

on the opinion of Baruch Lev, Leopald A. Bernstein, and Bambang Riyanto, Slamet

Munawir concluded that the classification of ratio is best adapted to the purpose of the

analysis which is to assess liquidity, solvency, and profitability, and other information

necessary. (Munawir, 2010).

II.3 Review of Previous Research

The previous studies which used for comparison and reference in this research

are:

1. Research conducted by the Ediningsih (2001) was “Pengaruh Rasio

Keuangan Terhadap Pertumbuhan Laba Pada Perusahaan Manufaktur Di

BEJ". The research sample used is 30 manufacturing companies serving the

financial statements during the period 1993-1999. The independent variable

used is operating income to sales (OSI), operating income to net income

before taxes (OINBT), earnings before taxes to sales (EBITS), quick assets

to inventory (QAI), sales to total assets (STA), current assets to total assets

(CATA), operating income to total liabilities (OITL), current liabilities to

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inventory (CLI), currentl liabilities to net worth (CLNW), total liabilities to

current assets (TLCA), current assets to sales (CAS), sales to net worth

(NWS), sales to fixed assets (SFA). Dependent variable used is profit growth

(PG). Linear regression equation results showed that CATA, CAS, OITL,

CLI, TLCA, OIBT, and EBTS have an influence on profit growth.

2. Research conducted by SW (2006) was

“PengaruhRasioKeuanganTerhadapKemampuanMemprediksiPerubahanLab

aPada Perusahaan – Perusahaan Manufaktur Yang Terdaftar di PT Bursa

Efek Jakarta". The independent variables used are debt to equity ratio (DE),

leverage ratio (LR), gross profit margin (GPM), operating profit ratio (OPR),

inventory turnover (IT), total asset turnover (TAT), return on investment

(ROI), and return on equity (ROE). With the dependent variable is profit

growth. The results of linear regression equation suggest that the GPM,

inventory turnover, ROI, and ROE have an influence on profit growth.

3. Research conducted by Syamsudin and Primayuta (2009) was "Rasio

Keuangan dan Prediksi Perubahan Laba Perusahaan Manufaktur yang

Terdaftar di Bursa Efek Indonesia". The independent variables used are debt

to equity ratio (DER), net profit margin (NPM), total asset turnover (TATO),

and current ratio (CR). The dependent variable is profit growth. Results from

the research showed that only the current ratio and total asset turnover that

possess significant influence on the growth of profit.

4. Research conducted by Zul (2009) was "Pengaruh Rasio Keuangan Terhadap

Perubahan Laba Pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek

Indonesia". The research was conducted at 86 manufacturing companies

listed on the Indonesia stock exchange in the period 2005-2007 with 15

financial ratios as follows: total debt to total capital assets ratio (TDTCA),

25

working capital to net sales (WCNS), current ratio (CR), return on assets

(ROA), gross profit to net sales (GPNS), debt to equity ratio (DER), working

capital to total assets (WCTA), inventories to working capital, profit before

taxes to shareholder equity (PBTSE) with a dependent variable is profit

growth. The results showed that the total debt to total capital asset ratio,

working capital to net sales, current ratio, return on assets, gross profit to net

sales and debt to equity ratio affect profit changes in the year to come.

5. Previous research conducted by Prasetyo (2010) was " Pengaruh Rasio

Keuangan Terhadap Laba Pada Perusahaan Manufaktur yang terdaftar di

BEI ". This research uses 49 manufacturing companies listed on the

Indonesia stock exchange. The independent variables of research is the

current ratio (CR), debt to equity ratio (DER), gross profit margin (GPM),

total asset turnover (TAT) and net profit margin(NPM) with dependent

variable is the change in profit. The results showed that CR, DER, GPM, and

TAT did not affect the profit, and only NPM that influence profit.

6. A previous study by Dianggoro (2011) was “Analisis Rasio Keuangan

Dalam Memprediksi Perubahan Laba Pada Perusahaan Manufaktur ".

Research conducted on 105 companies manufacturing the independent

variable is the current ratio, quick ratio, total debt to total assets ratio

(TDTA), total debt to total equity ratio(TDTE), average age of account

receivables ratio(AAR), inventory turnover ratio (IT), fixed assets turnover

ratio (FAT), total assets turnover ratio (TAT), profit margin ratio and return

on equity (ROE). The dependent variable is the profit growth. The results

showed the current ratio, average age of accounts receivable ratio, and profit

margin ratio have effect on profit growth.

26

II.4 Hypotheses

In accordance Munawir (2010) opinion stating that the classification of ratio is

best adapted to the purpose of the analysis is to assess liquidity, solvency, and

profitability, and other necessary information, then researchers can use one or more

ratios that can represent each category of performance. In this research the author will

use a measure of performance of five categories: liquidity, activity, leverage,

profitability, and market. Based on previous studies we used the following ratios:

Table II.1 Financial Ratio Used for Research

No. Category Financial Ratio 1 Liquidity CUR 2 Activity ITO 3 Leverage DER 4 Profitability ROA 5 Market PBV

Formulation of the hypothesis is as follows:

Ha-1: CUR has an influence on the profit growth in consumer goods

manufacturing companies listed on the Indonesia stock exchange

Ha-2: ITO has an influence on the profit growth in consumer goods


Ha-3: DER has an influence on the profit growth in consumer goods


Ha-4: ROA has an influence on the profit growth in consumer goods


Ha-5: PBV has an influence on the profit growth in consumer goods


27

CHAPTER III

DATA PROCESSING METHOD

III.1 Research Variables and Operational Definition

In this research there is a dependent variable and five independent variables.

1. Dependent Variable (PG)

The dependent variable in this research is profit growth (PG). Profit growth

is calculated by subtracting the current period profit to profit prior periods

and the result divided by the profit in the previous period. Profit growth is

defined as follows:

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐺𝑟𝑜𝑤𝑡ℎ (𝑃𝐿) =𝑃𝐿(t) − 𝑃𝐿(t − 1)

𝑃𝐿(𝑡)

2. Independent Variables

The independent variable in this research consisted of:

a. Current Ratio (CUR)

CUR is a liquidity ratio that indicates a company's ability to use

corporate assets to smooth short-term debt on time is needed.

CUR is a comparison between current assets against short-term debt.

CUR is formulated as follows:

𝐶𝑈𝑅 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡


28

b. Inventory Turnover (ITO)

ITO is one activity ratios were used to assess the ability of the company

to take advantage of inventory, by assessing how often the company

produces inventory after selling the previous stock. ITO is a comparison

between the Cost of Goods Sold to the average stock in a year. ITO can

be formulated as follows:

𝐼𝑇𝑂 = 𝐶𝑂𝐺𝑆

(𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)/2

c. Debt to Equity Ratio (DER)

DER is a solvency ratio that reflects the proportion of debt and equity to

finance the company. DER is a comparison of total liabilities to total

equity. DER can be formulated as follows:

𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

d. Return On Asset Ratio (ROA)

ROA is a profitability ratio that is used to assess the ability of the

company to empower owned assets to generate profit. ROA is the ratio

between incomes before tax to total assets. ROA can be formulated as

follows:

𝑅𝑂𝐴 =𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

29

e. Price to Book Value Ratio (PBV)

PBV is a market ratio of a stock's performance when viewed from its

value. PBV is the ratio between the values of the shares based on the

market valuation and the real value of the stock, and can be formulated

as follows:

𝑃𝐵𝑉 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑃𝑟𝑖𝑐𝑒

Table III.1 Variables and Operational Definition

Variables Variables Definition Scale Formula Dependent Variable

Profit Growth (PG)

A difference between current net income with previous year net income divided by current net income

Ratio 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐺𝑟𝑜𝑤𝑡ℎ (𝑃𝐿) =𝑃𝐿(t) − 𝑃𝐿(t − 1)

𝑃𝐿(𝑡)

Independent Variable

Current Ratio (CUR)

Ratio between current assets with current liabilities

Ratio 𝐶𝑈𝑅 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡


Inventory Turnover (ITO)

Ratio between Cost of Goods Sold with average inventory owned by company in a year

Ratio 𝐼𝑇𝑂 = 𝐶𝑂𝐺𝑆

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)

Debt to Equity Ratio (DER)

Ratio which measures proportion of debt and equity to finance the company

Ratio 𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

Return on Asset (ROA)

Ratio between Profit before tax and total assets

Ratio 𝑅𝑂𝐴 =𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Price to Book Value Ratio (PBV)

Ratio between market valuation and current valuation of stock price

Ratio 𝑃𝐵𝑉 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑃𝑟𝑖𝑐𝑒

III.2 Types of Data

The type of data used in this research is a secondary data. Secondary data is data

that contains information about the object of research and is provided by a third party.

Financial data used is a secondary form of data such as annual reports, audited financial

statements, and a summary of the company's financial statements during the years of

research since 2008 to 2011.

30

III.3 Data Collecting Method

Financial data in the form of annual reports, audited financial statements and

summary financial statements were collected through the mechanical observation

process with documentation method (Sekaran, 2006). The document was collected from

various sources, including the company's official website, IDX websites, and ECFIN

(Institute for Economic and Financial Research). To get financial ratios which are not

yet available in the financial statements and to calculate the company's profit growth the

author used calculation method manually using Microsoft Excel.

III.4 Population and Samples

This research choose manufacturing company in consumer goods sector as

population to focus on the characteristic similarity of company. The population in this

research is a manufacturing company in the consumer goods sector listed on the

Indonesia stock exchange consists of 41 classified as food & beverages manufacturer

company, tobacco manufacturers company, pharmaceutical company, cosmetics &

household company, housewares company, and others (Nugraha, 2012). These

companies are similar in field of business which is consumer product manufacturers.

The sample was determined by purposive sampling (Sekaran, 2006) with the following

criteria:

1. The company has been listed on the Indonesia stock exchange during the

period of the research, which was in 2008 - 2011

2. Companies included in the manufacturing industry specifically in consumer

goods sector which is indicated by the prefix code number corresponding to

JASICA index begin with 5.

31

3. During the research period, the company made an annual financial report and

released to the public.

According to the above criteria the author obtained a sample of 24 companies.

The choice of such companies as the research samples is based on several reasons,

namely:

1. Data availability of audited financial statements used to calculate financial

ratios and profit

2. To avoid the effect of the characteristics differences between the

manufacturing companies which go public and private then author selected

go public manufacturing company, as well as differences in the

characteristics of the company's operations and to achieve the research

focused the company used consumer goods manufacturing sector as a

sample.

3. The selection of ratio is based on the use of consistent ratio in previous

studies, and the use of a uniform financial ratios which have been reported in

the company's financial statements.

III.5 Analysis of Data

The method of analysis is a method used to process the data and predict the

results of research in order to obtain a conclusion. To achieve the goal of research the

author used multiple linear regression analysis. Multiple linear regression analysis was

used to test the effect of independent variables on dependent variable, which in this

research tested the effect of financial ratios on the company's profit growth. Multiple

linear regression analysis in this research is the analysis of 1 dependent variable and 5

independent variables. The linear regression equation is as follows:

32

PG = constant +(B1.CUR) + (B2.ITO) + (B3.DER) + (B4.ROA) + (B5.PBV) + ε

Where:

PG = dependent variable

B1, B2,...,B5 = regression coefficient

CUR, ITO, DER, ROA, PBV= independent variables

ε = variance of error/residual related to PG

To determine whether regression models really have shown a significant and

representative or BLUE (Best, Linear, Unbiased, Estimator), then the model must

satisfy the classical assumptions of regression by performing normality test,

autocorrelation test, multicollinearity test, and heterocedasticity test (Horngren, Datar,

Foster, Rajan, & Ittner, 2009).

1. Classical Assumption Test

a. Normality Test

Normality test aims to test whether the regression model, the residuals are

distributed normally around the regression line (Horngren et al, 2009). Good

regression models have good data distribution normal or near normal. To

detect normality can be done by looking at the graph of normal probability

plot (P-Plot) and the histogram of the results of the calculation of statistical

data. Basis for decision-making of normal probability plot analysis is when

the data is spread around the diagonal line and follow the direction of the

diagonal line of research data patterns, those data are considered to have a

normal distribution and regression models are considered to meet the

33

assumptions of normality. Another way, data with bell shaped histogram is

considered have normal distribution (Neuman, 2011).

b. Autocorrelation Test

Good linear regression model is a regression that satisfies the assumption

that there is no autocorrelation. Autocorrelation is a correlation between the

variance errors of an observation to other observations. If the linear

regression equation has the autocorrelation, the regression estimator is still

unbiased, and consistent, it just not efficient anymore (Siagian & Sugiarto,

2006).

To detect the presence or absence of autocorrelation author can use the

method of Durbin Watson d-test. The following table can be used to

determine whether there is or there is not the presence of serial correlation in

the error.

Table III.2 Durbin Watson Rule

IF Decision ± D ≅ 0 There is positive autocorrelation between residuals D ≅ 2 There is no autocorrelation between residuals 2 < 𝐷 ≅ 4 There is negative correlation between residuals

Source:(Efferin, Darmadji, &Tan, 2008)

c. Multicollinearity Test

Good linear regression model can be viewed with no occurrence of

multicollinearity. It is a circumstances in which there is correlation between

the independent variables. To determine the presence of multicollinearity can

be done by looking at the value of the partial correlation score between the

independent variables. It showed by the value of condition index, the value

of tolerance and VIF values. Multicollinearity occurs if the condition index

exceeds 20, the value of tolerance is less than 0.1 and VIF values in excess

34

of 10. Tolerance value tells us how much variance in a variable that cannot

explained by other predictor variables. The range is from 0 to 1, where the

closer to 1, the more other predictor variables indicated cannot explain the

variance in variables calculated.

d. Heterocedasticity Test

Heterocedasticity test is used to see that the residual terms are unaffected by

the level of independent variables. (Horngren et al, 2009). Heterocedasticity

testing can be done by looking at scatter plot. A homocedastic data have no

pattern of distribution and the residual spread above and under 0 ordinat.

Another test can be used to see the heterocedasticity is using White test

methods. Basis for decision making is, if the value of Prob * Chi Square

over the significant value of the research, the data is considered

homocedastic or free from heterocedasticity.

2. Hypotheses Test

After the classical assumption test, then the hypothesis tested, start from

hypothesis 1 (H1) to hypothesis 5 (H5). Tests conducted with a significance test

consisting of F-test, R2, t test, and see beta coefficient to determine the significant

financial ratios and generate profit growth prediction models. The statistical calculation

called statistically significant if the value of the statistic test is in the critical areas (areas

where H0 is rejected). In the other hand, it is insignificant when the statistic test is in the

area where H0 is accepted.

35

a. Determination Coefficient (R2).

The coefficient of determination (R2) is a measure of how far the model's

ability to explain the dependent variable. Small value of R2 is indicate that

the ability of independent variables in explaining the dependent variable is

limited. In contrast, the value of R2 close to 1 indicates the independent

variables provide almost all the information needed by the dependent

variable. (Siagian & Sugiarto, 2006). Furthermore, the value used is the

adjusted R2 because the independent variables used for the research is more

than two.

b. F-test

F test is used to see the contribution of CUR, ITO, DER, ROA, and PBV to

explain the value of profit growth of manufacturing company in BEI. The

steps taken are (Efferin, Darmadji, & Tan, 2008):

• Formulate hypotheses (H0&Ha)

H0: µ = 0 (there is no significant value of independent variable toward

dependent variable simultaneously)

Ha: µ ≠ 0 (there is significant value of independent variable toward


• Determining the level of significance or α (can be 5%, 10%, or 1%)

• Comparing F-count to F-table

F-table can be calculated in Ms. Excel using formula as follow:

𝐹 − 𝑡𝑎𝑏𝑙𝑒 = 𝐹𝑖𝑛𝑣(𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦,𝑑𝑓1,𝑑𝑓2)

F-count can be found directly using SPSS, for manual calculation the

formula as follow:

36

𝐹 − 𝑐𝑜𝑢𝑛𝑡 =𝑀𝑆𝑅𝑀𝑆𝐸

𝐹 − 𝑐𝑜𝑢𝑛𝑡 = (𝑆𝑆𝑅𝑘 )

( 𝑆𝑆𝐸𝑛 − 𝑘 − 1)

Where:

MSR = Mean Square of Regression

MSE = Mean Square of Error or Residual

SSR = Sum Square of Regression

SSE = Sum Square of Error/Residual

Probability = α = 5%, 10%, or 1%

df1= k = number of independent variables

df2 =n-k-1

The decision taken based on as follow:

o If (-)F-table<F–count<F-table then accept H0

(There is no significant value of independent variable toward


o If (-)F-table>F–count>F-table then accept Ha

(There is significant value of independent variable toward dependent

variable simultaneously)

• Using F-significance

If F-significance > significance level of research, accept H0

(There is no significant value of independent variable toward dependent

variable simultaneously) and vice versa.

37

c. T-Test

T-test is used to test the significance of the effect of CUR, ITO, DER, ROA,

and PBV partially for profit growth in manufacturing companies on the

Indonesia stock exchange.

The test is done is as follows (Efferin, Darmadji, & Tan, 2008):

• Formulate hypotheses (H0& Ha)

H0 : µ = 0 (there is no significant value of independent variable toward

dependent variable partially)

Ha : µ ≠ 0 (there is significant value of independent variable toward


• Determining the level of significance or α (can be 5%, 10%, or 1%)

• Comparing t-count to t-table

T-table can be calculated in Ms. Excel using formula as follow:

𝑇 − 𝑡𝑎𝑏𝑙𝑒 = 𝑇𝑖𝑛𝑣(𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦,𝑑𝑓)

Where:

Probability = α = 5%, 10%, or 1%

df = n-k-1

n = numbers of sample

k = numbers of independent variable

T-count can be found directly using SPSS, for manual calculation the

formula as follow:

𝑇 − 𝑐𝑜𝑢𝑛𝑡 =𝐵 − 𝐵(0)𝑆(𝐵)

38

Where:

B = coefficient of independent variables (B1, B2, B3, B4, B5)

B(0) = population slope with the value of 0

S(B) = Standard Error of independent variables

The decision taken based on as follow:

o If (-)T–table < t-count <T-table then accept H0

(There is no significant value of independent variable toward


o If (-)T-table> T-count>T-table then accept Ha


variable partially)

• Using T-significance

If T-significance > significance level of research, accept H0



39

CHAPTER IV

ANALYSIS AND EVALUATION

IV.1 Classical Assumption Test Result

Multiple regression analysis is an analysis which studies the relationship

between the independent variable and dependent variable. In this research the dependent

variable is profit growth, while the independent variable consists of five financial ratios

which is the current ratio, inventory turnover, debt to equity ratio, return on assets, and

price to book value. For purposes of the research, those variables are represented by

CUR, ITO, DER, ROA, PBV, and PG.

As mentioned in the previous chapter, the research was conducted in the

Indonesia stock exchange by taking a sample of industrial manufacturing companies in

consumer goods sector. The total sample is 24 companies with year research period

from 2008 to 2011. To test the validity of the regression analysis has been done it is

necessary to test the classical assumptions. Classical assumption test was used to test

whether the data used are normally distributed, whether there is a presence or absence

of autocorrelation or correlation among the residuals of independent variables, whether

there is multicollinearity, and whether there is heterocedasticity or similarity among

residuals of independent variables.

1. Normality Test

Based on P-Plot charts and histograms generated by SPSS, it can be said that the

research data meets the assumption of normality. The residuals are spread along the

diagonal line in normal p-plot graph and histogram of the data is bell shaped.

40

Figure IV.1 Normal P-Plot

Figure IV.2 Histogram

41

Table IV.1 Descriptive Statistic Result

Based on the table above, it can be explained as follows:

a. Current ratio (CUR) data spread in a range of maximum value of 11.74 and

minimum value of 0.66. It means there is a company that can maintain its

current asset 11.74 times their current liability. It is good because the

company has a lot of fund to cover up the liabilities, but it also has

weakness, which are the increasing risk of holding that asset and less optimal

usage of current asset. The company with highest value is cosmetics &

household manufacturer company named as PT Mandom Indonesia Tbk.

The lowest current ratio value of 0.66 showed there is a company which has

less amount of current asset compared to its current liabilities. It means,

there is a possibility the company has difficulty to pay back its liabilities.

The lowest value of current ratio owned by food & beverages manufacturer

company, named PT Multi Bintang Indonesia Tbk. Overall, manufacturing

company specifically in consumer goods sector have ability to maintain the

current ratio at average value of 3.25.

b. Inventory turnover statistic showed that the least optimal production in a

company is 0.2 times which means there is a company that only able to

produce and sell the product only 0.2 number of cycle in a year. A less

42

number of production cycle means less active the company both in terms of

produce and selling the goods. As opposed to minimum ITO value, the

highest ITO of 11.53 showed that the most optimal production cycle in

consumer goods company is 11.53 times which means the company can

produce and sell the goods as amount as 11.53 times or it only took about 32

days to produce and sell the goods. In this research the lowest and highest

ITO value owned by PT PT Langgeng Makmur Industry Tbk (Houseware

manufacturer) and PT Mayora Indah Tbk (Food & Beverages

manufacturer)Overall, consumer goods companies can maintain ITO at

average ratio of 4.34

c. Statistic data showed the highest value of DER is 22.9. This value which

owned by PT Schering-Plough Indonesia Tbk, described that the company as

pharmaceutical company finance the operation mostly by using liabilities as

much as 22.9 times of its equity which is considered as high risk financing

option because the company has large portion of fixed charges that should be

paid in a certain period. The lowest value of DER is 0.1 owned by PT

Mandom Indonesia Tbk. It means the company confidently uses equity as

the main source to finance its operation. Overall, consumer goods companies

maintain its DER at value of 1.486 which means the companies prefer to

finance the operation through almost equal portion between debt and equity.

d. The highest of ROA is 0.57 owned by PT Taisho Pharmaceutical Indonesia

Tbk. It showed the most optimal usage of asset in terms of generating profit

is at ratio of 0.57 which means by using Rp 1 assets the company generate

Rp 0.57 profit. The lowest value of ROA showed that PT Schering Plough

Indonesia Tbk as a pharmaceutical company has difficulty to generate profit

using its asset because the statistic showed that the company suffer loss at

43

ratio of 0.09. Overall, consumer goods companies generate profit by using

its asset at ratio of 0.15.

e. The value of PBV at 35.45 showed that the highest possible market valuation

for consumer goods stock is at 35.45 times of its current price while the

lowest market valuation is (33.24). The negative value arise because of the

negative profit report, thus make the nominal price negative. This negative

profit report owned by Schering-Plough Indonesia Tbk. Overall, the

consumer goods companies has average market valuation of 2.45.

f. Profit growth (PG) which is the ratio between the difference in income over

the previous 2 years showed the highest value at 9.02 and lowest value at

(2.71). This means consumer goods company in this research generates

profit growth at the highest point of 9.02 and suffer loss within the years at

the lowest point of (2.71). Overall, consumer goods companies have average

growth of profit of 48% within the year.

2. Autocorrelation Test

One of the test is testing the autocorrelation test. If there is a correlation in the

regression equation, the regression prediction remains unbiased, and consistent, but not

efficient anymore. This research uses Durbin Watson test for autocorrelation test

assumptions. After that, Durbin Watson value obtained through SPSS software and then

compared with Durbin Watson table. Based on the values obtained, calculated DW is

2.047, it is known that the data used in this research do not have autocorrelation.

Table IV.2 Durbin Watson Result

44

3. Multicollinearity Test

To determine whether there is any correlation between the independent variables

can be seen by calculating the tolerance and VIF, where tolerance values smaller than

0.1 indicate a correlation between the independent variables, as well as the VIF value

greater than 10. The presence of multicollinearity in the data allegedly did not have a

significant indication on the forecasting. Besides forecasting value can also be seen by

calculating the value of R2. The higher the value of R2 the better the forecasting value

indication.

Table IV.3 Tolerance and VIF Result

4. Heterocedasticity Test

Another classic test of this assumption is heterocedasticity testing, which is

testing to see if the residual variance is spread evenly (homocedastic) or not. If there is

heterocedasticity, the estimation of regression coefficients become inefficient. The

results can be estimated become less than it should be, it can be exceeded what it should

or become misleading.

45

In this research heterocedasticity test using the software Eviews White test.

Heterocedasticity happens if there is a significant correlation between the independent

variables with the residual value.

Here is a table of test results with assessments of White Prob. Chi-Square.

Seeing the value of Prob*. Chi-Square which is more than the significance of the

research (5%), then data in this research can be said to be free from symptoms of

heterocedasticity.

Table IV.4 Heterocedasticity Result

IV.2 Hypotheses Test Result

46

Regression Results of 5 financial ratios to profit growth after testing among

other classical assumption normality test, autocorrelation, multicollinearity test, and test

of heterocedasticity, the research data can be declared free of the symptoms of

autocorrelation, multicollinearity, and heterocedasticity, and is normally distributed.

Once the data is eligible as BLUE (Best, Linear, Unbiased, Estimator) by testing

the classical assumptions, then hypothesis testing can be performed from H1 to H5.

Hypothesis testing is done with a test of significance consisting of F test, R2, and t test.

Table IV.5 Hypotheses Result

1. Determination Coefficient (R2)

Based on statistical calculations have been made, it is obtained R2 value of

0.0789. This value indicates that the calculations using the independent variables only

provide information about profit growth of 7.8%. In other words, the independent

variables simultaneously (simultaneous) predicts only 7.8% variance of each sample on

dependent variable.

47

From the calculation of the standard error of the estimate obtained a smaller

value than the value of standard deviation. This means that the standard error of the

estimate become a good predictor in determining the dependent variable.

2. F test

In multiple regression analysis, the main thing that was about to be seen is

whether a series of independent variables simultaneously affect the dependent variable.

In the statistical calculations have been done, then be obtained F value is calculated as

follows:

Table IV.6 F-test Result

Basis for decision-making are as follows:

o If (-)F-table < F–count < F-table then accept H0



o If (-)F-table > F–count > F-table then accept Ha



F-count = 1.543, where the F-table = 2.315 so that it is known that

simultaneously independent variables does not affect the variable y. Moreover, it can

take a decision based upon ANOVA significance values, with the basic hypothesis:

48

• If F-significance > significance level of research, accept H0



From the calculation, the significance value is 0.185 which is greater than the

significance of the research which is 0.05. It can be concluded that H0 is accepted which

means independent variables simultaneously does not affect the dependent variable.

3. T-test

Partial regression coefficients indicate whether the independent variables have

an effect partially or separately to the dependent variable. Level of influence was

calculated by t test.

Based on a statistical t-test value is obtained as follows:

Table IV.7 T-test Result

t-table = 1.9867

Decision was taken as follows:

• If (-)T–table < t-count <T-table then accept H0


variable partially)

49

• If (-)T-table > T-count >T-table then accept Ha


variable partially)

T-count represented as follow:

• T-CUR > T-table, H0-1rejected, Ha-1accepted

• T-ITO < T-table, H0-2accepted, Ha-2rejected

• T-DER< T-table, H0-3accepted, Ha-3rejected

• T-ROA< T-table, H0-4accepted, Ha -4rejected

• T-PBV< T-table, H0-5accepted, Ha-5rejected

From the comparison of t-count and t table above it can be seen that the overall

t-count of independent variables is less than t-table so that four of the hypotheses 0 of

independent variables is accepted, which means partially independent variables not

affect the dependent variable except CUR in which Ha-1 accepted. The statistic also

show although t-count of PBV is less than t-table in significance of 5%, its Ha is

accepted when the significance of research is 10%.

IV.3 Result Interpretation

From the results of testing the hypotheses above can be briefly described as

follows:

Table IV.8 Summary of Hypotheses Testing Result

Independent Variables

Regression Coefficient

T-Count Sig.

Constant 0.813 2.011 0.047 CUR -0.146 -2.396 0.019 ITO 0.024 0.373 0.710 DER -0.001 -0.032 0.974 ROA 1.066 0.972 0.334 PBV -0.048 -1.799 0.075

50

R square = 0.0789 F – value = 1.543 Sig. = 0.185 DW = 2.047

Population regression model is as follow:

PG = 0.813 – 0.146 CUR + 0.024 ITO – 0.001 DER + 1.066 ROA – 0.048 PBV

R2 value of 0.0789 indicates that financial ratios CUR, ITO, DER, ROA, and

PBV affect profit growth of 7.8% in consumer goods manufacturing company. The

independent variables have effects that are not significant simultaneous views of the

significance of F which greater than 0.05.

However, when observed partially, financial ratios have different levels of

significance to the growth of profit. Current ratio (CUR) appeared to have a significant

effect on profit growth with a significance value of 0.019. CUR regression coefficient of

-0.146 indicates that if the value of CUR has increased by 1 unit, then the profit growth

declined by 14%. This is in contrast to the statement of Prasetyo Nurdin (2010) which

current ratio is partially has no significant effect on the company's profit growth in

manufacturing.

However, this research result supports previous research that has been done by

Eka Khairunnisa Zul (2009) and Ceky & Syamsudin (2009). One possible reason of

negative changes caused by current profit to growth ratio is a company's profit are used

to meet short-term obligations of the company by increasing the amount of a company's

current assets. Despite the decline in profit that may have an impact on a reduced

income of investors, but current ratio can give a guarantee or margin of safety against

the risk faced by the company, for example, when a sudden shock occurs then the

company is still able to meet its obligations to pay its debts.

51

Separately ITO has no significant effect on profit changes, further regression

coefficients showed little value for 0.024 This value indicates that the increase in the

value of ITO, increase profit by 2.4%. Profit growth shows that the optimization of

inventory, by which the company tried to increase the activity of enterprises ranging

from manufacturing to distribution to several times a year and / or increase sales of

inventory, they can increase profit growth, although not significantly. Test results on

ITO t-test supports the results of previous studies conducted by Suprihatmi SW (2006)

and opposite to the results of Angga Erwin Dianggoro (2011).

The company leverage ratio which is Debt to Equity Ratio, partially also has no

significant effect on profit growth. It is seen from the value of significance of 0.974 and

the regression coefficients for -0.001. The implication of the value of -0.001 is an

increasing in the proportion of debt to equity only make 0.1% lower profit. Possible

causes for the decline in profit is likely that the increased interest expense led to a

decreased profit. Increasing interest expenses incurred when companies increase the

debt as a source of corporate financing. These results corroborate the results of previous

research results except the result from Eka (2009) which states that the DER has

significant effect on profit growth.

From the test t-test founded a value of significance of ROA for 0.334 and

regression coefficient amounted 1.066. This suggests that the effect of ROA on profit

growth is not significant. This contrasts with the results of Eka (2009) and in

accordance with the results of Angga (2011). However, aside from the significance

value, ROA is the most dominant ratio on the growth of profit, because ROA increases

by 1 unit causes an increase in profit of 106%. The reason for this is due to optimal use

of assets so that the number of assets owned by the company is able to create high sales,

it also possible that company can minimize expense so that profit generated becomes

greater.

52

PBV as the ratio between the market value and the actual value of the shares has

a significant effect on profit growth, with a record of significance of research value is

0.1. However, the interpretation of the regression coefficient value of -0.048 indicates

that the increase in PBV only affect profit increased by 4%. Price to Book Value can be

considered as an assessment of the market value of the intangible assets of the company.

High PBV values enabled the company to raise funds by selling less amounts of stock

in the amount (Wild, 2004). However at certain level value of the shares can become

stagnant and experiencing the opposite of the previous value which is become cheaper

so there will be a possible loss transaction. It is thought to explain the decline in profit

due to an increase in PBV. In addition, Bigham & Houston (2009) stated that profit

decline that occurred allegedly associated with the signaling theory in which a firm with

favorable prospects would want to finance with stock, which would mean bringing in

new investors to share the losses.

Overall, the financial ratios that significantly influence profit growth only

current ratio (CUR) with a negative regression coefficient value of 14.6%. Another

ratios affect profit growth is PBV with regression coefficient of 4.8%, with

consideration of the effect is significant at the research confidence interval of 10%.

Based on above explanation, the model of profit growth prediction can be formulated as

follow:


53

CHAPTER V

CONCLUSION AND RECOMMENDATION

V.1 Conclusion

The purpose of research is to identify whether there is significant effect of

financial ratios such as current ratio (CUR), inventory turnover (ITO), debt to equity

ratio (DER), return on asset ratio (ROA), and price to book value ratio (PBV) to profit

growth simultaneously and partially. This research selected 24 from 41 manufacturing

companies in consumer goods sector. Sample of data used are financial ratio that are

published annually in the financial statements within the period of 2008 to 2011. In

order to prove the hypothesis regarding the purpose of research, the author used

multiple regression analysis. Multiple regression analysis used to measure the effect of

independent variable to dependent variable.

1. Answer for Statement of Problem

Based on the research, the answer for statement of problem could be concluded

as:

a. The determination of R2 showed that the independent variables (CUR, ITO,

DER, ROA, and PBV) can explain 7.8% of the variation in profit growth. It

means the independent variable only predict 7.8% of profit growth, the rest,

about 92.2% of profit growth affect by other factors.

b. Simultaneously, there is no significant effect of independent variables to

dependent variables. The f-test showed that together independent variables

have 0.185 significance, while the significance of the research is 0.05 which

means the result is in the area outside the significance of research. Therefore,

54

the null hypothesis (H0) is accepted which show there is no significant effect

of independent variable to dependent variable.

c. Based on t-test, there only two ratios which have significant effect to profit

growth partially. The ratio are current ratio (CUR) and price to book value

(PBV). CUR has significance value of 0.019 which is less than significance

value of research of 0.05. Therefore, alternative hypothesis is accepted

which show there is significant effect of CUR to PG. The regression

coefficient tells that if CUR is increased about 1 then PG will decreased for

14.6%.

PBV also has significance effect on profit growth partially in the

significance of research of 0.1. It has significance value of 0.075, then Ha is

accepted on significance of research of 10%. For significance of research of

5% then H0 is accepted which shows that there is no significant effect of

PBV to profit growth. Regression coefficient of PBV tells that for every

increased on PBV the PG will decreased as 4.8%. The other ratios, which are

inventory turnover (ITO), debt to equity (DER), and return on assets (ROA)

have significance of value more than 0.05 then H0 is accepted which is there

is no significant effect of ITO, DER, and ROA to PG.

d. Based on the t-test and regression coefficient of independent variables

towards dependent variables, so the model of predictor can be formulated as

follow:


55

V.2 Recommendation

Based on research some financial ratios did not have significant implications in

assessing the financial performance as measured by profit growth. However, when put

aside the significance of the research, the general financial ratios can still be used to

view the company's financial trends in this manufacturing company in the consumer

goods sector. It can be seen that the increase in current ratio turned out to reduce the

growth in corporate profit. The management can use this information as the basis for

optimizing the use of current assets in order to meet short-term obligations, but also still

produce a profit to the company.

Optimized inventory allows the company to produce the inventory in a shorter

period of time and high inventory cycle can be used to enhance profit growth. While it

can be seen that both the use of debt and equity to finance the company has less effect

on profit growth. Companies can use a debt in consideration of the trade-off theory

where companies get tax benefits in return on financial risk for the use of debt.

Companies can also use the equity as a source of corporate financing by risk advert

considerations. However, based on observations, 61 of 96 samples had a DER less than

1, which means the general manufacturing company in the consumer goods sector

choose equity as a source of corporate financing.

Although not have a significant effect on profit growth, ROA as a profitability

ratio indicates that a unit increase in ROA increase profit by 106%. This means setting

the expenses indirectly affect profit growth. This is because the least amount of expense

to the company, the greater the value of income earned before tax, which means the

company gets more profit. In addition it also illustrates the value of ROA effectiveness

in managing the company's assets so that profit earned greater than the expense used for

the utilization of assets.

56

PBV has a significant effect on profit growth at 10% significance of the research

indicate that the use of equity as a financing company has its own weaknesses that

increase in the market valuation of the company's share price turned out to be inversely

impact to the growth in profit. Companies can use this information to maintain

proportion of stock and policies relating to company stock transactions. Profit decline

that occurred allegedly associated with the signaling theory in which a firm with

favorable prospects would want to finance with stock, which would mean bringing in

new investors to share the losses. This will make the prospective investor to make an

offer and buy shares at a price lower than that assessed by the market share.

There is a possibility of loss of stock transactions that impact on negative profit

growth. As known, the market price cannot be changed by the company as a result of

economic processes and the company does not have the authority to do that. However,

the company can exercise control over the decline in profit by maintaining other aspects

of the company such as sales levels, expense efficiencies, and others as an indicator that

the high PBV accompanied by a good performance from various aspects so that

prospective investors do not get the wrong picture with respect to high valued of PBV

and company still have the possibility to achieve gains from stock transactions.

The statistical research is one way to see the movement or trend of a

measurement. In other words, something judged by the pattern seen. Statistics can be

used to predict anything. But keep in mind, regardless of the significance of the

prediction model, there will always be a possibility that at some point the results of

calculations using the model predictions do not correspond with the reality of the

matter. Therefore, users of financial statements, in addition to referring to the scientific

testing, need to improve in-depth analysis skill of financial statements.

57

Results from this research are expected to provide insight to the users of

financial ratios in measuring the performance of the company especially in the

manufacturing company sector consumer goods. Due to the limited research on

manufacturing companies, it is advisable for the next researcher to conduct the same but

with a different focus research which use a sample of companies operating in the other

sector of business other than consumer goods, where the results obtained can be used as

a comparison tool in measuring company performance.

58

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60

60

APPENDIX A

No. JASICA Kode Emiten Nama Emiten Tahun CUR ITO DER ROA PBV Net Income

(Million Rp) PL

1 51 AISA PT Tiga Pilar Sejahtera Food Tbk 2008 0.8854 2.2066 1.6000 0.0521 1.82 28686 0.8202 2 51 CEKA PT Cahaya Kalbar Tbk 2008 7.3507 8.9510 1.4500 0.0697 0.84 27868 0.1289 4 51 DLTA PT Delta Djakarta Tbk 2008 3.7894 7.5938 0.3400 0.1686 0.62 83754 0.7695 5 53 DVLA PT Darya-Varia Laboratoria Tbk 2008 4.134 3.1767 0.2600 0.1713 1.06 70819 0.4187 6 52 GGRM PT Gudang Garam Tbk 2008 2.2174 1.8568 0.5500 0.1103 0.53 1880492 0.3027 7 52 HMSP PT HM Sampoerna Tbk 2008 1.4443 2.9775 1.0000 0.3593 4.41 3895280 0.0749 8 53 INAF PT Indofarma (Persero) Tbk 2008 1.3316 5.5173 2.2600 0.0102 0.52 5032 (0.5457) 9 51 INDF PT Indofood Sukses Makmur Tbk 2008 0.8977 2.9151 3.1100 0.0657 0.96 1034389 0.0551

10 53 KAEF PT Kimia Farma (Persero) Tbk 2008 2.1132 5.5295 0.5300 0.0665 0.45 55394 0.0614 11 55 KDSI PT Kedawung Setia Industrial

Tbk 2008 1.1957 7.0179 1.1300 0.0266 0.17 5716 (0.6058)

12 55 KICI PT Kedaung Indah Can Tbk 2008 6.4565 2.0307 0.3100 0.0779 0.21 3057 (0.8058) 13 55 LMPI PT Langgeng Makmur Industry

Tbk 2008 2.3518 0.1991 0.4300 0.0073 0.18 2572 2.7428

14 53 MERK PT Merck Tbk 2008 7.7737 3.7517 0.1500 0.3813 2.43 98620 0.1021 15 51 MLBI PT Multi Bintang Indonesia Tbk 2008 0.9353 8.3273 1.7300 0.3335 3.03 222307 1.6344 16 54 MRAT PT Mustika Ratu Tbk 2008 6.3106 2.8546 0.1700 0.0898 0.22 22290 1.0027 17 51 MYOR PT Mayora Indah Tbk 2008 2.1887 7.8741 1.3200 0.0938 0.70 196230 0.3859 18 51 PSDN PT Prasidha Aneka Niaga Tbk 2008 2.7829 8.6173 1.6300 0.1465 1.55 9448 2.0928 19 53 PYFA PT Pyridam Farma Tbk 2008 1.6443 2.7058 0.4200 0.0370 0.39 2309 0.3247 20 53 SCPI PT Schering-Plough Indonesia

Tbk 2008 0.8909 1.5725 22.9000 0.0666 4.46 6621 1.5773

21 51 SKLT PT Sekar Laut Tbk 2008 1.7052 7.1340 1.0000 0.0367 0.62 4271 (0.2562)

61


(Million Rp) PL

22 53 SQBI PT Taisho Pharmaceutical Indonesia Tbk (Sebelumnya: PT Bristol-Myers Squibb Indonesia)

2008 3.3676 3.6714 0.3700 0.4703 0.24 94271 0.8068

23 54 TCID PT Mandom Indonesia Tbk 2008 8.0978 3.9650 0.1200 0.1850 1.35 114854 0.0326 24 53 TSPC PT Tempo Scan Pacific Tbk 2008 3.8306 4.4963 0.2900 0.1486 0.81 320648 0.1519 25 51 ULTJ PT Ultra Jaya Milk Tbk 2008 1.8539 3.8274 0.5300 0.0221 2.04 303712 9.0179 1 51 AISA PT Tiga Pilar Sejahtera Food Tbk 2009 1.1726 1.7682 2.1400 0.0389 1.40 37787 0.3173 2 51 CEKA PT Cahaya Kalbar Tbk 2009 4.8945 9.1675 0.8900 0.1233 1.47 49463 0.7749 4 51 DLTA PT Delta Djakarta Tbk 2009 4.7036 5.7215 0.2700 0.2341 1.68 126504 0.5104 5 53 DVLA PT Darya-Varia Laboratoria Tbk 2009 3.0502 3.7220 0.4100 0.1456 1.54 72272 0.0205 6 52 GGRM PT Gudang Garam Tbk 2009 2.4600 1.6989 0.4800 0.1773 2.27 3455702 0.8377 7 52 HMSP PT HM Sampoerna Tbk 2009 1.8806 3.2259 0.6900 0.4072 4.36 5087339 0.3060 8 53 INAF PT Indofarma (Persero) Tbk 2009 1.5421 4.6720 1.4400 0.0174 0.86 2126 (0.5775) 9 51 INDF PT Indofood Sukses Makmur Tbk 2009 1.1609 4.8340 2.4500 0.1006 3.07 2075861 1.0068


Tbk 2009 1.1971 6.5404 1.3100 0.0300 0.26 10511 0.8389

12 55 KICI PT Kedaung Indah Can Tbk 2009 5.5321 2.1449 0.3900 -0.0467 0.17 -5215 (2.7059) 13 55 LMPI PT Langgeng Makmur Industry

Tbk 2009 2.7843 2.0803 0.3600 0.0146 0.55 5992 1.3297

14 53 MERK PT Merck Tbk 2009 5.0382 4.1762 0.2300 0.4791 5.06 146700 0.4875 15 51 MLBI PT Multi Bintang Indonesia Tbk 2009 0.6589 7.2817 8.4400 0.4756 35.45 340458 0.5315 16 54 MRAT PT Mustika Ratu Tbk 2009 7.1788 3.3788 0.1600 0.0790 0.53 21017 (0.0571) 17 51 MYOR PT Mayora Indah Tbk 2009 2.2904 7.3386 1.0300 0.1552 2.18 372158 0.8965

62

18 51 PSDN PT Prasidha Aneka Niaga Tbk 2009 1.5627 5.4829 1.4400 0.1656 1.26 32450 2.4346


(Million Rp) PL

19 53 PYFA PT Pyridam Farma Tbk 2009 2.0993 2.2843 0.3700 0.0543 0.81 3773 0.6340 20 53 SCPI PT Schering-Plough Indonesia

Tbk 2009 0.9375 1.7622 9.4900 0.0884 7.14 10789 0.6295

21 51 SKLT PT Sekar Laut Tbk 2009 1.8902 5.0352 0.7300 0.0633 0.91 12803 1.9977 22 53 SQBI PT Taisho Pharmaceutical

Indonesia Tbk (Sebelumnya: PT Bristol-Myers Squibb Indonesia)

2009 5.4527 4.0780 0.2100 0.5707 0.50 131259 0.3924

23 54 TCID PT Mandom Indonesia Tbk 2009 7.2631 4.0420 0.1300 0.1771 1.85 124612 0.0850 24 53 TSPC PT Tempo Scan Pacific Tbk 2009 3.4684 4.9436 0.3400 0.1473 1.36 359964 0.1226 25 51 ULTJ PT Ultra Jaya Milk Tbk 2009 2.1163 3.5696 0.4500 0.0567 1.41 61153 (0.7986) 1 51 AISA PT Tiga Pilar Sejahtera Food Tbk 2010 1.285 1.5824 2.3400 0.0486 2.27 75235 0.9910 2 51 CEKA PT Cahaya Kalbar Tbk 2010 1.6723 2.2320 1.7500 0.0474 1.06 29562 (0.4023) 4 51 DLTA PT Delta Djakarta Tbk 2010 6.3308 2.5106 0.2000 0.2723 3.33 139557 0.1032 5 53 DVLA PT Darya-Varia Laboratoria Tbk 2010 3.7167 3.1616 0.3300 0.1802 2.05 110881 0.5342 6 52 GGRM PT Gudang Garam Tbk 2010 2.7008 1.5570 0.4400 0.1832 3.63 4146282 0.1998 7 52 HMSP PT HM Sampoerna Tbk 2010 1.6125 3.1772 1.0100 0.4262 12.08 6421429 0.2622 8 53 INAF PT Indofarma (Persero) Tbk 2010 1.5515 4.8436 1.3600 0.0278 0.80 12547 4.9017 9 51 INDF PT Indofood Sukses Makmur Tbk 2010 2.0365 4.8195 1.3400 0.1149 2.55 2952858 0.4225


Tbk 2010 1.2664 6.8480 1.1800 0.0348 0.37 16892 0.6071


Tbk 2010 1.7624 2.4225 0.5159 0.0075 0.68 2794 (0.5337)

14 53 MERK PT Merck Tbk 2010 7.5731 3.4493 0.2000 0.3618 5.95 118794 (0.1902)

63

15 51 MLBI PT Multi Bintang Indonesia Tbk 2010 0.9450 7.2005 1.4100 0.5225 12.29 442916 0.3009


(Million Rp) PL

16 54 MRAT PT Mustika Ratu Tbk 2010 7.6134 3.6106 0.1400 0.0853 0.82 24419 0.1619 17 51 MYOR PT Mayora Indah Tbk 2010 2.5808 11.5306 1.1800 0.1497 4.14 484086 0.3008 18 51 PSDN PT Prasidha Aneka Niaga Tbk 2010 1.3821 6.2518 1.6000 0.0946 0.83 12919 (0.6019) 19 53 PYFA PT Pyridam Farma Tbk 2010 3.0088 2.2501 0.3000 0.0560 0.88 4199 0.1129 20 53 SCPI PT Schering-Plough Indonesia

Tbk 2010 0.8887 1.5532 18.2800 -0.0321 11.25 -8043 (1.7455)

21 51 SKLT PT Sekar Laut Tbk 2010 1.9251 5.3068 0.6900 0.0310 0.82 4834 (0.6224) 22 53 SQBI PT Taisho Pharmaceutical


2010 5.6886 4.8864 0.1900 0.3895 0.50 92643 (0.2942)

23 54 TCID PT Mandom Indonesia Tbk 2010 10.6845 4.6327 0.1000 0.1657 1.53 131445 0.0548 24 53 TSPC PT Tempo Scan Pacific Tbk 2010 3.3685 5.4890 0.3600 0.1754 2.95 488889 0.3582 25 51 ULTJ PT Ultra Jaya Milk Tbk 2010 2.0007 3.4753 0.5400 0.1011 2.69 107123 0.7517 1 51 AISA PT Tiga Pilar Sejahtera Food Tbk 2011 1.8935 3.5187 0.9589 0.0516 2.16 126906 0.6868 2 51 CEKA PT Cahaya Kalbar Tbk 2011 1.6869 4.7707 1.0300 0.1582 0.70 96306 2.2578 4 51 DLTA PT Delta Djakarta Tbk 2011 6.0090 2.0397 0.2151 0.2943 3.42 145085 0.0396 5 53 DVLA PT Darya-Varia Laboratoria Tbk 2011 4.8304 3.2351 0.2753 0.1792 1.87 120915 0.0905 6 52 GGRM PT Gudang Garam Tbk 2011 2.2448 1.3178 0.5921 0.1692 5.10 4894057 0.1803 7 52 HMSP PT HM Sampoerna Tbk 2011 1.7493 4.0245 0.8993 0.5631 19.06 8065414 0.2560 8 53 INAF PT Indofarma (Persero) Tbk 2011 1.5380 4.5778 0.8301 0.0495 1.52 36919 1.9425

9 51 INDF PT Indofood Sukses Makmur Tbk 2011 1.9095 5.3773 0.6952 0.1185 1.33 3077180 0.0421 10 53 KAEF PT Kimia Farma (Persero) Tbk 2011 2.7475 5.7982 0.4325 0.1293 1.57 171766 0.2383

64

11 55 KDSI PT Kedawung Setia Industrial Tbk

2011 1.3582 6.0833 1.1047 0.0527 0.37 23629 0.3988


(Million Rp) PL


Tbk 2011 1.4772 3.1159 0.6848 0.0113 0.51 5424 0.9413

14 53 MERK PT Merck Tbk 2011 7.5152 3.5078 0.1825 0.4847 7.62 231159 0.9459 15 51 MLBI PT Multi Bintang Indonesia Tbk 2011 0.9942 7.4889 1.3023 0.5574 23.70 507238 0.1452 16 54 MRAT PT Mustika Ratu Tbk 2011 6.2707 3.2267 0.1787 0.0869 0.62 27868 0.1412 17 51 MYOR PT Mayora Indah Tbk 2011 2.2187 8.4977 1.7220 0.0949 4.97 471028 (0.0270) 18 51 PSDN PT Prasidha Aneka Niaga Tbk 2011 1.5501 7.0641 1.0426 0.0881 2.96 12837 (0.0063) 19 53 PYFA PT Pyridam Farma Tbk 2011 2.5399 1.9467 0.4325 0.0600 1.14 5172 0.2317 20 53 SCPI PT Schering-Plough Indonesia

Tbk 2011 3.7792 1.8029 13.4706 -0.0902 -33.24 -25420 2.1605

21 51 SKLT PT Sekar Laut Tbk 2011 1.6974 5.6145 0.7432 0.0374 0.80 5976 0.2362 22 53 SQBI PT Taisho Pharmaceutical


2011 5.8005 5.1015 0.1959 0.4453 0.44 120059 0.2959

23 54 TCID PT Mandom Indonesia Tbk 2011 11.7428 4.4674 0.1082 0.1681 1.57 140039 0.0654 24 53 TSPC PT Tempo Scan Pacific Tbk 2011 3.0830 5.4178 0.3954 0.1741 3.85 566048 0.1578 25 51 ULTJ PT Ultra Jaya Milk Tbk 2011 1.5209 4.0666 0.5538 0.0720 2.21 101232 (0.0550)

65

APPENDIX B

SPSS RESULT

66

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate Durbin-Watson

1 .281a .079 .028 1.27716 2.047

a. Predictors: (Constant), PBV, DER, ITO, CUR, ROA

b. Dependent Variable: PL

67

EVIEWS RESULT

Documents

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