Effect Of Profitability Ratios, Liquidity Ratios, Solvency Ratios And Corporate Size To Corporate Value In Manufacturing Companies Food And Beverage Sub Sector Listed On The Indonesia Stock Exchange In 2017-2021

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Effect of Profitability Ratios, Liquidity Ratios, Solvency Ratios, and Corporate Size to Company Value in Manufacturing Companies Sub Sector Food and Beverage Listed on the Indonesia Stock Exchange in 2017-2021

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a wide range of companies listed across various sectors. The manufacturing sector, particularly the food and beverage sub-sector, is a significant contributor to the country's economy. In this context, understanding the factors that influence the value of companies in this sub-sector is crucial for investors, managers, and policymakers. This study aims to analyze the effect of profitability ratios, liquidity ratios, solvency ratios, and corporate size on company value in manufacturing companies listed on the IDX in the food and beverage sub-sector during the 2017 to 2021 period.

Literature Review

Previous studies have shown that profitability ratios, liquidity ratios, and solvency ratios are significant factors in determining company value. Profitability ratios, such as return on equity (ROE) and return on assets (ROA), indicate a company's ability to generate profits from its assets and equity. Liquidity ratios, such as current ratio and quick ratio, measure a company's ability to meet its short-term obligations. Solvency ratios, such as debt-to-equity ratio and interest coverage ratio, indicate a company's ability to fulfill its long-term obligations.

On the other hand, corporate size has been shown to have a mixed effect on company value. Some studies have found that large companies tend to have higher market values due to their economies of scale and market power. However, other studies have found that large companies may experience high managerial complexity and operational costs, which can negatively affect their efficiency and profitability.

Methodology

This study uses a descriptive analysis approach with the Linear regression method in the panel data. The population in this study consisted of 24 companies listed on the IDX in the food and beverage sub-sector. The samples taken were as many as 12 companies. The data were collected from the IDX database and other secondary sources.

Results

The results of this study showed that the profitability ratio had a positive and significant influence on the company's value. This indicates that the higher the profitability ratio possessed by the company, the higher the company's value. Good profitability shows that companies are able to generate adequate profits, thereby increasing investor confidence and encouraging positive assessment of the value of the company's shares.

Conversely, the liquidity ratio shows a positive but not significant effect on the company's value. Although good liquidity is important to ensure that the company can meet its short-term obligations, its effect on company value is not too large. Investors are more likely to pay attention to aspects of profitability and growth rather than just liquidity.

The solvency ratio also shows attractive results with positive and significant influence on company value. This ratio illustrates the company's ability to fulfill its long-term obligations. Companies with strong solvency are more likely to be stable and able to survive in the long run, thereby increasing attractiveness for investors.

On the other hand, the company's size turned out to have a negative and insignificant effect on the company's value. This can be caused by the fact that large companies do not always guarantee good performance. Large companies can be accompanied by high managerial complexity and operational costs, which ultimately affect the efficiency and profitability of the company.

Discussion

The results of this study suggest that in the context of manufacturing companies in the food and beverage sub-sector, the main concern for managers and company owners should be focused on increasing profitability and solvency ratios, while company size and liquidity may not be a key factor in increasing company value. Therefore, policies directed at improving profitability performance can be an effective strategy in increasing company value in the eyes of investors.

Conclusion

In conclusion, this study provides insights into the factors that influence company value in manufacturing companies listed on the IDX in the food and beverage sub-sector. The results suggest that profitability ratios, liquidity ratios, and solvency ratios are significant factors in determining company value, while corporate size has a negative and insignificant effect on company value. The findings of this study have implications for investors, managers, and policymakers, and highlight the importance of focusing on improving profitability and solvency ratios to increase company value.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Improving profitability performance: Companies should focus on improving their profitability performance by increasing their revenue and reducing their costs.
  2. Enhancing solvency ratios: Companies should aim to improve their solvency ratios by reducing their debt levels and increasing their equity.
  3. Investing in liquidity management: Companies should invest in liquidity management to ensure that they can meet their short-term obligations.
  4. Focusing on growth: Companies should focus on growth and expansion to increase their market value.

Limitations

This study has several limitations. Firstly, the sample size is relatively small, which may limit the generalizability of the findings. Secondly, the study only focuses on manufacturing companies in the food and beverage sub-sector, which may not be representative of other sectors. Finally, the study only uses secondary data, which may not capture the nuances of the companies' financial performance.

Future Research Directions

Future research should aim to replicate this study using a larger sample size and a more diverse range of companies. Additionally, future research should explore the impact of other factors, such as market conditions and industry trends, on company value.
Q&A: Effect of Profitability Ratios, Liquidity Ratios, Solvency Ratios, and Corporate Size to Company Value in Manufacturing Companies Sub Sector Food and Beverage Listed on the Indonesia Stock Exchange in 2017-2021

Q: What is the main objective of this study?

A: The main objective of this study is to analyze the effect of profitability ratios, liquidity ratios, solvency ratios, and corporate size on company value in manufacturing companies listed on the Indonesia Stock Exchange (IDX) in the food and beverage sub-sector during the 2017 to 2021 period.

Q: What are the key findings of this study?

A: The key findings of this study are:

  • Profitability ratios have a positive and significant influence on company value.
  • Liquidity ratios have a positive but not significant effect on company value.
  • Solvency ratios have a positive and significant influence on company value.
  • Corporate size has a negative and insignificant effect on company value.

Q: What are the implications of these findings for investors, managers, and policymakers?

A: The implications of these findings are:

  • Investors should focus on companies with high profitability ratios and strong solvency ratios.
  • Managers should prioritize improving profitability and solvency ratios to increase company value.
  • Policymakers should consider implementing policies that support the growth of companies with high profitability and solvency ratios.

Q: What are the limitations of this study?

A: The limitations of this study are:

  • The sample size is relatively small.
  • The study only focuses on manufacturing companies in the food and beverage sub-sector.
  • The study only uses secondary data.

Q: What are the future research directions for this study?

A: The future research directions for this study are:

  • Replicating the study using a larger sample size and a more diverse range of companies.
  • Exploring the impact of other factors, such as market conditions and industry trends, on company value.

Q: What are the practical implications of this study for companies in the food and beverage sub-sector?

A: The practical implications of this study for companies in the food and beverage sub-sector are:

  • Companies should prioritize improving profitability and solvency ratios to increase company value.
  • Companies should invest in liquidity management to ensure that they can meet their short-term obligations.
  • Companies should focus on growth and expansion to increase their market value.

Q: What are the policy implications of this study for the Indonesian government?

A: The policy implications of this study for the Indonesian government are:

  • The government should consider implementing policies that support the growth of companies with high profitability and solvency ratios.
  • The government should prioritize improving the business environment to attract more foreign investment.
  • The government should consider implementing policies that support the development of the food and beverage industry.

Q: What are the implications of this study for the Indonesian stock market?

A: The implications of this study for the Indonesian stock market are:

  • The study highlights the importance of profitability and solvency ratios in determining company value.
  • The study suggests that investors should focus on companies with high profitability and solvency ratios.
  • The study suggests that the Indonesian stock market should prioritize supporting the growth of companies with high profitability and solvency ratios.