Quick Assets to Inventory Ratio

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The Influence of Changes in Financial Ratios and Inflation Rates on Profit Changes in Manufacturing Companies on the Jakarta Stock Exchange

Introduction

The Jakarta Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a significant number of manufacturing companies listed on it. The profitability of these companies is influenced by various factors, including financial ratios and inflation rates. This study aims to investigate the relationship between changes in financial ratios, inflation rates, and changes in profit in manufacturing companies listed on the IDX.

Background

Financial ratios are widely used by investors, analysts, and company management to evaluate the financial performance of companies. These ratios provide insights into a company's efficiency, profitability, and liquidity. Inflation rates, on the other hand, can have a significant impact on a company's profitability, as it can affect the cost of production, sales, and revenue. Understanding the relationship between financial ratios, inflation rates, and profitability is crucial for making informed investment decisions and implementing effective strategies to increase profitability.

Methodology

This study used a sample of 100 manufacturing companies listed on the IDX. The data was collected from the companies' financial statements and inflation rates from the Bank of Indonesia. The study analyzed 18 changes in financial ratios and variable changes in inflation rates. The results were analyzed using regression analysis to identify the key factors that influence company profitability.

Results

The results of this study showed that changes in 5 financial ratios have a significant influence on changes in earnings, namely:

*** Sales Ratio to Total Assets (Sales to Total Assets): ** This ratio shows the company's efficiency in utilizing assets to generate sales. The higher this ratio, the more efficient the company in managing its assets and has the potential to increase profits. *** Quick Assets to Inventory Ratio: ** This ratio shows the company's ability to fulfill its short-term obligations quickly using liquid assets. A high ratio indicates the company's ability to manage inventory and convert them into cash quickly, which in turn can increase profitability. *** Net Profit Margin: ** This ratio measures the percentage of net profit to total income. The higher the net profit margin, the better the company's performance in generating profits from every rupiah in income. *** Return on Assets (ROA): ** This ratio measures company profitability based on the assets owned. The higher ROA, the more efficient the company in utilizing assets to generate profits. *** Return on Equity (ROE): ** This ratio measures company profitability based on one's own capital. The higher ROE, the more efficient the company in utilizing its own capital to generate profits.

Interestingly, this study found that changes in inflation level had no significant effect on changes in earnings. This shows that in the short term, inflation factors may not have a big impact on the profitability of manufacturing companies on the IDX.

The results of this study also showed that changes in financial ratios and the level of inflation simultaneously had a significant effect on changes in earnings, with the coefficient of determination (R-squared) of 0.970 or 97.0%. This means that 97% of changes in profit can be explained by changes in financial ratios and inflation rates.

Implications

This study has important implications for various parties, including:

*** Investor: ** Understanding the relationship between financial ratios, inflation, and profitability of the company can help investors in making more informed investment decisions. *** Company Management: ** The results of this study can help company management in understanding key factors that influence profitability and implement the right strategies to increase profitability. *** Researcher: ** This research provides a deeper understanding of the dynamics of the profitability of manufacturing companies in the IDX.

Conclusion

This study provides a comprehensive analysis of the relationship between changes in financial ratios, inflation rates, and changes in profit in manufacturing companies listed on the IDX. The results show that changes in 5 financial ratios have a significant influence on changes in earnings, while changes in inflation level have no significant effect on changes in earnings. The study also found that changes in financial ratios and the level of inflation simultaneously have a significant effect on changes in earnings. The implications of this study are significant, as it provides guidance for stakeholders to understand and manage factors that can affect the financial performance of manufacturing companies on the IDX.

Recommendations

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

Investors should consider financial ratios and inflation rates when making investment decisions.
Company management should focus on improving financial ratios, such as sales ratio to total assets, quick assets to inventory ratio, net profit margin, return on assets, and return on equity.
Researchers should conduct further studies to investigate the relationship between financial ratios, inflation rates, and profitability in other industries and countries.

Limitations

This study has several limitations, including:

The sample size of 100 manufacturing companies may not be representative of all manufacturing companies listed on the IDX.
The study only analyzed 18 changes in financial ratios and variable changes in inflation rates.
The study did not consider other factors that may influence profitability, such as market conditions and government policies.

Future Research Directions

Future research should aim to:

Investigate the relationship between financial ratios, inflation rates, and profitability in other industries and countries.
Analyze the impact of other factors, such as market conditions and government policies, on profitability.
Develop a more comprehensive model that includes other factors that may influence profitability.

References

Bank of Indonesia. (2022). Inflation Rate.
IDX. (2022). List of Manufacturing Companies.
Financial statements of 100 manufacturing companies listed on the IDX.

Appendix

The appendix includes the detailed results of the regression analysis, including the coefficients, standard errors, and p-values.
Frequently Asked Questions (FAQs) about the Influence of Changes in Financial Ratios and Inflation Rates on Profit Changes in Manufacturing Companies on the Jakarta Stock Exchange

Q: What is the main objective of this study? A: The main objective of this study is to investigate the relationship between changes in financial ratios, inflation rates, and changes in profit in manufacturing companies listed on the Jakarta Stock Exchange (IDX).

Q: What are the key findings of this study? A: The key findings of this study are that changes in 5 financial ratios (sales ratio to total assets, quick assets to inventory ratio, net profit margin, return on assets, and return on equity) have a significant influence on changes in earnings, while changes in inflation level have no significant effect on changes in earnings.

Q: What are the implications of this study for investors? A: The implications of this study for investors are that understanding the relationship between financial ratios, inflation, and profitability of the company can help investors in making more informed investment decisions.

Q: What are the implications of this study for company management? A: The implications of this study for company management are that the results of this study can help company management in understanding key factors that influence profitability and implement the right strategies to increase profitability.

Q: What are the limitations of this study? A: The limitations of this study are that the sample size of 100 manufacturing companies may not be representative of all manufacturing companies listed on the IDX, and the study only analyzed 18 changes in financial ratios and variable changes in inflation rates.

Q: What are the future research directions based on this study? A: The future research directions based on this study are to investigate the relationship between financial ratios, inflation rates, and profitability in other industries and countries, and to analyze the impact of other factors, such as market conditions and government policies, on profitability.

Q: What are the practical implications of this study for stakeholders? A: The practical implications of this study for stakeholders are that it provides guidance for stakeholders to understand and manage factors that can affect the financial performance of manufacturing companies on the IDX.

Q: What are the theoretical implications of this study? A: The theoretical implications of this study are that it contributes to the existing literature on the relationship between financial ratios, inflation rates, and profitability, and provides a deeper understanding of the dynamics of the profitability of manufacturing companies in the IDX.

Q: What are the policy implications of this study? A: The policy implications of this study are that it can inform policy decisions related to the regulation of the IDX and the development of strategies to promote the growth and profitability of manufacturing companies in the IDX.

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

Investigate the relationship between financial ratios, inflation rates, and profitability in other industries and countries.
Analyze the impact of other factors, such as market conditions and government policies, on profitability.
Develop a more comprehensive model that includes other factors that may influence profitability.

Q: What are the potential applications of this study? A: The potential applications of this study are that it can be used by investors, company management, and researchers to understand and manage factors that can affect the financial performance of manufacturing companies on the IDX.

Q: What are the potential limitations of this study? A: The potential limitations of this study are that it may not be generalizable to other industries or countries, and that the results may be influenced by the specific sample used in the study.

Q: What are the potential future research directions for this study? A: The potential future research directions for this study are to:

Investigate the relationship between financial ratios, inflation rates, and profitability in other industries and countries.
Analyze the impact of other factors, such as market conditions and government policies, on profitability.
Develop a more comprehensive model that includes other factors that may influence profitability.

Q: What are the potential implications of this study for stakeholders? A: The potential implications of this study for stakeholders are that it provides guidance for stakeholders to understand and manage factors that can affect the financial performance of manufacturing companies on the IDX.

Q: What are the potential theoretical implications of this study? A: The potential theoretical implications of this study are that it contributes to the existing literature on the relationship between financial ratios, inflation rates, and profitability, and provides a deeper understanding of the dynamics of the profitability of manufacturing companies in the IDX.

Q: What are the potential policy implications of this study? A: The potential policy implications of this study are that it can inform policy decisions related to the regulation of the IDX and the development of strategies to promote the growth and profitability of manufacturing companies in the IDX.