The Importance of Cash Flows in Investment Decisions

Oct 13, 2025 by talynt.org 36 views

Analysis of the Effect of Operating Cash Flow, Investment Cash Flow, Funding Cash Flow, EVA, and Dividend Payout Ratio on the Trading Volume of Shares of Textile Manufacturing Industry Companies and Garment Listed on the Indonesian Stock Exchange

Introduction

In the world of investment, cash flows have an important role in determining the financial health of a company. The ability of a company to generate cash flows is a key indicator of its ability to meet its financial obligations and invest in its growth. This study aims to analyze the effect of operating cash flows, investment cash flows, funding cash flows, economic value added (EVA), and the ratio of dividend distribution on the volume of stock trading in the textile manufacturing industry company and garment listed on the Indonesia Stock Exchange (IDX) Period 2011-2013.

The Importance of Cash Flows in Investment Decisions

Cash flows are a critical component of a company's financial performance, and investors use them to evaluate a company's ability to generate cash and meet its financial obligations. Operating cash flows, investment cash flows, and funding cash flows are the three main types of cash flows that a company generates. Operating cash flows are generated from a company's core business activities, such as sales and production. Investment cash flows are generated from a company's investments in assets, such as property, plant, and equipment. Funding cash flows are generated from a company's financing activities, such as borrowing and issuing debt.

Research Methodology

In this study, the purposive sampling method was used to collect data, which produced 13 companies with three years of observation, so that the total unit of analysis reached 39. The data analyzed was taken from the audited financial statements and could be accessed through the official IDX website at www.idx.co.id. To analyze data, a multiple linear regression method is used, which allows researchers to see the simultaneous and partial effects of the variables studied on the volume of stock trading.

Research Result

The results showed that simultaneously, operating cash flows, investment cash flows, funding cash flows, EVA, and dividend distribution ratios had a significant effect on the volume of stock trading. However, when viewed partially, only the operating cash flow and funding cash flow show a significant effect on the volume of stock trading. Among the five variables studied, funding cash flows are the most dominant factor in influencing the volume of stock trading.

Additional Analysis and Explanation

The significant effect of funding cash flow on the volume of stock trading can be associated with how companies use capital to fund operational and investment. When a company has a good funding cash flow, investors tend to be more confident to buy the company's shares, because it shows that the company can fund its growth without high dependence on debt. Conversely, the operating cash flow which also has a significant influence shows the importance of operational performance. Companies that are able to produce cash flows from their strong operational activities, indicate the sustainability and potential for growth, thereby increasing investor interest.

The Role of EVA in Investment Decisions

Economic value added (EVA) is a measure of a company's financial performance that takes into account the cost of capital. EVA is calculated by subtracting the cost of capital from a company's net operating profit after taxes (NOPAT). A positive EVA indicates that a company is generating value for its shareholders, while a negative EVA indicates that a company is destroying value. In this study, EVA was found to have a significant effect on the volume of stock trading, indicating that investors use EVA as an important indicator of a company's financial performance.

The Role of Dividend Payout Ratio in Investment Decisions

The dividend payout ratio is a measure of a company's ability to distribute cash to its shareholders. A high dividend payout ratio indicates that a company is distributing a large portion of its cash flows to its shareholders, while a low dividend payout ratio indicates that a company is retaining a large portion of its cash flows to invest in its growth. In this study, the dividend payout ratio was found to have a significant effect on the volume of stock trading, indicating that investors use the dividend payout ratio as an important indicator of a company's ability to distribute cash to its shareholders.

Conclusion

Overall, this study provides important insights on the factors that affect the volume of stock trading in the textile manufacturing industry sector and garment. The results show that a deep understanding of cash flow and how the company operates can be an important indicator for investors in making investment decisions. Thus, it is important for companies to maintain positive cash flow performance in order to increase the appeal of their shares in the market.

Recommendations

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

Companies in the textile manufacturing industry sector and garment should focus on maintaining positive cash flow performance in order to increase the appeal of their shares in the market.
Investors should use cash flow and EVA as important indicators of a company's financial performance in making investment decisions.
Companies should consider using funding cash flows to fund operational and investment activities, rather than relying on debt.
Companies should consider increasing their dividend payout ratio in order to distribute cash to their shareholders and increase investor interest.

Limitations of the Study

This study has several limitations that should be noted. Firstly, the study only analyzed data from 13 companies in the textile manufacturing industry sector and garment, which may not be representative of the entire industry. Secondly, the study only analyzed data from 2011-2013, which may not be representative of the current market conditions. Finally, the study only analyzed the effect of cash flows and EVA on the volume of stock trading, and did not analyze the effect of other factors, such as market sentiment and economic conditions.

Future Research Directions

This study provides several avenues for future research. Firstly, future studies could analyze the effect of cash flows and EVA on the volume of stock trading in other industries, such as the technology and finance sectors. Secondly, future studies could analyze the effect of other factors, such as market sentiment and economic conditions, on the volume of stock trading. Finally, future studies could analyze the effect of cash flows and EVA on other financial metrics, such as return on equity (ROE) and return on assets (ROA).
Q&A: Analysis of the Effect of Operating Cash Flow, Investment Cash Flow, Funding Cash Flow, EVA, and Dividend Payout Ratio on the Trading Volume of Shares of Textile Manufacturing Industry Companies and Garment Listed on the Indonesian Stock Exchange

Q: What is the main objective of this study?

A: The main objective of this study is to analyze the effect of operating cash flows, investment cash flows, funding cash flows, economic value added (EVA), and the ratio of dividend distribution on the volume of stock trading in the textile manufacturing industry company and garment listed on the Indonesia Stock Exchange (IDX) Period 2011-2013.

Q: What are the key findings of this study?

A: The key findings of this study are:

Simultaneously, operating cash flows, investment cash flows, funding cash flows, EVA, and dividend distribution ratios have a significant effect on the volume of stock trading.
Partially, only the operating cash flow and funding cash flow show a significant effect on the volume of stock trading.
Funding cash flows are the most dominant factor in influencing the volume of stock trading.

Q: What is the significance of this study?

A: This study provides important insights on the factors that affect the volume of stock trading in the textile manufacturing industry sector and garment. The results show that a deep understanding of cash flow and how the company operates can be an important indicator for investors in making investment decisions.

Q: What are the implications of this study for investors?

A: The implications of this study for investors are:

Investors should use cash flow and EVA as important indicators of a company's financial performance in making investment decisions.
Investors should focus on companies with positive cash flow performance and high EVA.
Investors should consider the funding cash flow and dividend payout ratio when making investment decisions.

Q: What are the limitations of this study?

A: The limitations of this study are:

The study only analyzed data from 13 companies in the textile manufacturing industry sector and garment, which may not be representative of the entire industry.
The study only analyzed data from 2011-2013, which may not be representative of the current market conditions.
The study only analyzed the effect of cash flows and EVA on the volume of stock trading, and did not analyze the effect of other factors, such as market sentiment and economic conditions.

Q: What are the future research directions based on this study?

A: The future research directions based on this study are:

Analyzing the effect of cash flows and EVA on the volume of stock trading in other industries, such as the technology and finance sectors.
Analyzing the effect of other factors, such as market sentiment and economic conditions, on the volume of stock trading.
Analyzing the effect of cash flows and EVA on other financial metrics, such as return on equity (ROE) and return on assets (ROA).

Q: What are the practical implications of this study for companies in the textile manufacturing industry sector and garment?

A: The practical implications of this study for companies in the textile manufacturing industry sector and garment are:

Companies should focus on maintaining positive cash flow performance in order to increase the appeal of their shares in the market.
Companies should consider using funding cash flows to fund operational and investment activities, rather than relying on debt.
Companies should consider increasing their dividend payout ratio in order to distribute cash to their shareholders and increase investor interest.

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

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

The study provides important insights on the factors that affect the volume of stock trading in the textile manufacturing industry sector and garment.
The study highlights the importance of cash flow and EVA in making investment decisions.
The study provides a framework for investors to evaluate the financial performance of companies listed on the Indonesian stock exchange.