The Effect Of Financial Ratios On Profitability In Property And Real Estate Companies Listed On The Indonesia Stock Exchange For The 2014-2016 Period

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The Effect of Financial Ratios on Profitability in Property and Real Estate Companies Listed on the Indonesia Stock Exchange for the 2014-2016 Period

Introduction

The property and real estate sectors have been a significant contributor to the Indonesian economy, with numerous companies listed on the Indonesia Stock Exchange (IDX). However, the profitability of these companies can be influenced by various factors, including financial ratios. This study aims to analyze the effect of financial ratios, namely the current ratio, debt to equity ratio, long-term debt to equity ratio, and total asset turnover on the profitability of property and real estate companies listed on the IDX in the 2014 to 2016 period.

Literature Review

Financial ratios are widely used by investors, analysts, and company management to evaluate a company's financial performance and make informed decisions. The current ratio, debt to equity ratio, long-term debt to equity ratio, and total asset turnover are some of the most commonly used financial ratios in the property and real estate sectors. The current ratio measures a company's ability to pay its short-term debts, while the debt to equity ratio measures a company's level of indebtedness. The long-term debt to equity ratio measures a company's ability to manage its long-term debt, and the total asset turnover measures a company's efficiency in using its assets to generate sales.

Methodology

This study used a saturated sampling method to select 141 companies from the total population of 47 companies listed on the IDX in the 2014 to 2016 period. The data analysis was carried out using SPSS statistical software. The study used multiple regression analysis to examine the effect of financial ratios on company profitability.

Main Research Findings

The results of this study revealed several significant findings as follows:

Simultaneous Effect

Overall, the current ratio, debt to equity ratio, long-term debt to equity ratio, and total asset turnover have a significant influence on company profitability. This shows that these four ratios jointly contribute to influencing the company's ability to generate profits.

Effect of Current Ratio

The current ratio or current ratio shows a negative and significant effect on profitability. This indicates that companies with high levels of liquidity do not always guarantee a high level of profitability. The company might be better to invest current assets into a profitable project, rather than just storing it in liquid form.

Effect of Debt to Equity Ratio

The debt to equity ratio has a positive and significant influence on profitability. This means that companies that use debts to fund their operations can increase profits. The wise use of debt can encourage faster growth, provided the company is able to manage related risks.

Effect of Long-Term Debt to Equity Ratio

This indicates that companies that have high long-term debt tend to face a larger interest expense, which can erode their profits. Therefore, long-term debt management needs to be done carefully.

The Effect of Total Asset Turnover

The total asset turnover has a positive but not significant effect on profitability. This shows that although the efficiency of the use of assets can increase profits, the effect is not strong enough to be considered significant in the short term. Companies may need to improve operational strategies to maximize the use of existing assets.

Conclusion

Based on the results of the study, it can be concluded that financial ratios have a significant impact on company profitability in the property and real estate sectors. However, not all ratios have a positive influence. Therefore, it is essential for company management to understand the interaction between various financial ratios and utilize that information to make the right strategic decisions. In the context of investment, understanding of this ratio is also important for investors who want to predict the potential profitability of the company in the long run.

Implications of the Study

This research provides valuable insights on how financial ratios can be used to analyze company profitability performance, as well as providing guidance for stakeholders in making more informed decisions. The study's findings can be used by company management to make strategic decisions, such as investing in profitable projects, managing debt, and improving operational efficiency. Investors can also use the study's findings to predict the potential profitability of companies in the property and real estate sectors.

Limitations of the Study

This study has several limitations. Firstly, the study only analyzed the effect of financial ratios on company profitability in the property and real estate sectors. Secondly, the study only used data from the 2014 to 2016 period, which may not be representative of the current market conditions. Finally, the study only used a saturated sampling method, which may not be representative of the entire population of companies listed on the IDX.

Future Research Directions

Future research can build on the findings of this study by examining the effect of financial ratios on company profitability in other sectors, such as manufacturing and services. Additionally, future research can use more advanced statistical techniques, such as machine learning algorithms, to analyze the effect of financial ratios on company profitability. Finally, future research can use more recent data to examine the effect of financial ratios on company profitability in the current market conditions.

References

  • [List of references cited in the study]

Appendix

  • [Appendix containing additional tables and figures]

Abstract

This study aims to analyze the effect of financial ratios, namely the current ratio, debt to equity ratio, long-term debt to equity ratio, and total asset turnover on the profitability of property and real estate companies listed on the Indonesia Stock Exchange (IDX) in the 2014 to 2016 period. The study used a saturated sampling method to select 141 companies from the total population of 47 companies listed on the IDX. The data analysis was carried out using SPSS statistical software. The study's findings revealed that financial ratios have a significant impact on company profitability in the property and real estate sectors. However, not all ratios have a positive influence. The study's findings can be used by company management to make strategic decisions, such as investing in profitable projects, managing debt, and improving operational efficiency. Investors can also use the study's findings to predict the potential profitability of companies in the property and real estate sectors.
Q&A: The Effect of Financial Ratios on Profitability in Property and Real Estate Companies

Introduction

In our previous article, we discussed the effect of financial ratios on profitability in property and real estate companies listed on the Indonesia Stock Exchange (IDX) for the 2014-2016 period. In this article, we will answer some of the most frequently asked questions related to the study.

Q: What are financial ratios, and why are they important?

A: Financial ratios are mathematical expressions that compare a company's financial data to identify trends, patterns, and relationships. They are important because they provide insights into a company's financial health, profitability, and efficiency. Financial ratios can be used by investors, analysts, and company management to make informed decisions.

Q: What are the four financial ratios analyzed in this study?

A: The four financial ratios analyzed in this study are:

  1. Current Ratio: measures a company's ability to pay its short-term debts.
  2. Debt to Equity Ratio: measures a company's level of indebtedness.
  3. Long-term Debt to Equity Ratio: measures a company's ability to manage its long-term debt.
  4. Total Asset Turnover: measures a company's efficiency in using its assets to generate sales.

Q: What were the main findings of the study?

A: The study found that:

  1. Simultaneous Effect: Overall, the four financial ratios have a significant influence on company profitability.
  2. Effect of Current Ratio: The current ratio has a negative and significant effect on profitability.
  3. Effect of Debt to Equity Ratio: The debt to equity ratio has a positive and significant influence on profitability.
  4. Effect of Long-term Debt to Equity Ratio: The long-term debt to equity ratio has a negative and significant effect on profitability.
  5. Effect of Total Asset Turnover: The total asset turnover has a positive but not significant effect on profitability.

Q: What are the implications of the study's findings?

A: The study's findings have several implications:

  1. Company Management: Company management should understand the interaction between various financial ratios and utilize that information to make the right strategic decisions.
  2. Investors: Investors should use the study's findings to predict the potential profitability of companies in the property and real estate sectors.
  3. Stakeholders: Stakeholders, such as creditors and suppliers, should also use the study's findings to make informed decisions.

Q: What are the limitations of the study?

A: The study has several limitations:

  1. Sector-specific: The study only analyzed the effect of financial ratios on company profitability in the property and real estate sectors.
  2. Time period: The study only used data from the 2014 to 2016 period, which may not be representative of the current market conditions.
  3. Sampling method: The study used a saturated sampling method, which may not be representative of the entire population of companies listed on the IDX.

Q: What are the future research directions?

A: Future research can build on the findings of this study by:

  1. Analyzing other sectors: Examining the effect of financial ratios on company profitability in other sectors, such as manufacturing and services.
  2. Using advanced statistical techniques: Using more advanced statistical techniques, such as machine learning algorithms, to analyze the effect of financial ratios on company profitability.
  3. Using more recent data: Using more recent data to examine the effect of financial ratios on company profitability in the current market conditions.

Conclusion

In conclusion, the study's findings provide valuable insights into the effect of financial ratios on company profitability in the property and real estate sectors. The study's implications highlight the importance of understanding the interaction between various financial ratios and utilizing that information to make informed decisions. Future research directions can build on the study's findings to provide more comprehensive insights into the effect of financial ratios on company profitability.