Understanding profit growth through financial ratio lenses

Oct 13, 2025 by talynt.org 92 views

Reveals Secret of Profit Growth: Analysis of Manufacturing Company Financial Ratios on the IDX

Understanding profit growth through financial ratio lenses

In today's fast-paced business environment, predicting the profit growth of a manufacturing company is a crucial task for investors, analysts, and company management alike. This question has been at the forefront of many minds, and the answer lies in the analysis of financial ratios. This study aims to reveal the secret of profit growth by examining the effect of financial ratios on earnings growth in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2009-2013 period.

Know the main players: financial ratios analyzed

This study utilizes six financial ratios that have been proven to be relevant in reflecting a company's health and financial performance:

Current Ratio (CR): Measuring the company's ability to pay off short-term obligations with its current assets. A high current ratio indicates that a company has sufficient liquid assets to meet its short-term obligations, thereby reducing the risk of default.

Debt to Equity Ratio (DER): Shows the proportion of funding from debt to equity, which indicates the level of financial risk. A high debt-to-equity ratio indicates that a company is heavily reliant on debt financing, which can increase the risk of financial distress.

Operating Profit Margin (OPM): Reflecting the company's efficiency in managing operations and generating profits from sales. A high operating profit margin indicates that a company is able to generate significant profits from its sales, thereby increasing its profitability.

Return on Asset (ROA): Measuring the company's profitability by comparing net profit with total assets. A high return on asset indicates that a company is able to generate significant profits from its assets, thereby increasing its profitability.

Inventory Turnover (IT): Measuring the speed of inventory turnover, which indicates the efficiency of inventory management. A high inventory turnover ratio indicates that a company is able to sell its inventory quickly, thereby reducing the risk of inventory obsolescence.

Total Asset Turnover (Tattoo): Shows how effective the company's assets are used to generate sales. A high total asset turnover ratio indicates that a company is able to generate significant sales from its assets, thereby increasing its revenue.

Research Methods: Exploring Data and Relationship

This research utilizes secondary data from the official website of the IDX (www.idx.co.id). The research population consists of all manufacturing companies listed on the IDX during the 2009-2013 period. After undergoing a purposive sampling process, as many as 46 manufacturing companies became research samples. The analysis method used is multiple regression with the help of SPSS software version 20.

Amazing results: strong evidence of the influence of financial ratios

The results showed that DER and ROA partially had a significant influence on earnings growth. That is, the higher the DER and ROA ratio, the company's profit growth tends to increase. However, CR, OPM, IT, and Tattoos partially do not show a significant effect on earnings growth.

Interestingly, the results of the study also showed that simultaneously, CR, DER, OPM, IT, and Tattoos significantly affect earnings growth. This shows that the six ratios work together in determining earnings growth.

Implications: opening the way to a more appropriate decision

The results of this study have important implications for various parties:

Investor: Can utilize financial ratio information to predict the potential for manufacturing company profit growth and make more appropriate investment decisions.

*Analyst: Can use financial ratio analysis to assess company performance and provide more accurate recommendations.

Company Management: Can use financial ratio analysis to identify areas that need to be improved in order to increase profitability and achieve profit growth targets.

Conclusion: A Practical Guide for Profit Growth

This study provides strong evidence that the financial ratio is a powerful tool to predict the growth of manufacturing company profits. By understanding and analyzing financial ratios carefully, investors, analysts, and management of the company can make more appropriate decisions and direct the company towards sustainable growth.

Limitations and Future Research Directions

While this study provides valuable insights into the relationship between financial ratios and earnings growth, there are several limitations that need to be addressed in future research. Firstly, the study only examines the effect of financial ratios on earnings growth in manufacturing companies listed on the IDX. Future research can expand the scope of the study to include other industries and countries. Secondly, the study uses a single-year data, which may not capture the dynamic nature of financial ratios. Future research can use multi-year data to examine the long-term effect of financial ratios on earnings growth.

Practical Implications

The results of this study have important practical implications for investors, analysts, and company management. Investors can utilize financial ratio information to predict the potential for manufacturing company profit growth and make more appropriate investment decisions. Analysts can use financial ratio analysis to assess company performance and provide more accurate recommendations. Company management can use financial ratio analysis to identify areas that need to be improved in order to increase profitability and achieve profit growth targets.

Conclusion

In conclusion, this study provides strong evidence that the financial ratio is a powerful tool to predict the growth of manufacturing company profits. By understanding and analyzing financial ratios carefully, investors, analysts, and management of the company can make more appropriate decisions and direct the company towards sustainable growth.

Q&A: Understanding the Analysis of Financial Ratios

Q: What is the main objective of this study? A: The main objective of this study is to analyze the effect of financial ratios on earnings growth in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2009-2013 period.

Q: What are the financial ratios analyzed in this study? A: This study utilizes six financial ratios that have been proven to be relevant in reflecting a company's health and financial performance, including:

Current Ratio (CR)
Debt to Equity Ratio (DER)
Operating Profit Margin (OPM)
Return on Asset (ROA)
Inventory Turnover (IT)
Total Asset Turnover (Tattoo)

Q: What is the research method used in this study? A: This study uses secondary data from the official website of the IDX (www.idx.co.id) and multiple regression analysis with the help of SPSS software version 20.

Q: What are the results of this study? A: The results showed that DER and ROA partially had a significant influence on earnings growth, while CR, OPM, IT, and Tattoos partially do not show a significant effect on earnings growth. However, simultaneously, CR, DER, OPM, IT, and Tattoos significantly affect earnings growth.

Q: What are the implications of this study? A: The results of this study have important implications for investors, analysts, and company management, including:

Investors can utilize financial ratio information to predict the potential for manufacturing company profit growth and make more appropriate investment decisions.
Analysts can use financial ratio analysis to assess company performance and provide more accurate recommendations.
Company management can use financial ratio analysis to identify areas that need to be improved in order to increase profitability and achieve profit growth targets.

Q&A: Understanding the Limitations and Future Research Directions

Q: What are the limitations of this study? A: This study only examines the effect of financial ratios on earnings growth in manufacturing companies listed on the IDX, and uses a single-year data. Future research can expand the scope of the study to include other industries and countries, and use multi-year data to examine the long-term effect of financial ratios on earnings growth.

Q: What are the future research directions? A: Future research can:

Expand the scope of the study to include other industries and countries.
Use multi-year data to examine the long-term effect of financial ratios on earnings growth.
Examine the effect of other factors, such as market conditions and economic trends, on earnings growth.

Q&A: Understanding the Practical Implications

Q: How can investors utilize financial ratio information? A: Investors can utilize financial ratio information to predict the potential for manufacturing company profit growth and make more appropriate investment decisions.

Q: How can analysts use financial ratio analysis? A: Analysts can use financial ratio analysis to assess company performance and provide more accurate recommendations.

Q: How can company management use financial ratio analysis? A: Company management can use financial ratio analysis to identify areas that need to be improved in order to increase profitability and achieve profit growth targets.

Conclusion

In conclusion, this study provides a comprehensive analysis of the effect of financial ratios on earnings growth in manufacturing companies listed on the Indonesia Stock Exchange (IDX). The results of this study have important implications for investors, analysts, and company management, and provide a practical guide for predicting earnings growth and making more informed investment decisions.