TheEffectofLeverage,LiquidityandWorkingCapitalTurnonProfitability

Acompanycanmaximizeitsprofitifthefinancialmanagerknowsthefactorsthathavemajorinfluenceonprofitability.Thecompanycandeterminestepstoovercomeproblemsandminimizethenegativeimpact.Therearemanyfactorsthataffectthecompanyprofitability.Factorscanbemeasuredbyusingfinancialratio,financialsuchascurrentcapitalturnover,currentratioandcurrentsalegrowth,companysizeanddebitratiocanbeusedtodeterminetheeffectofeachvariableoncompany’sprofitability.
Profitabilitycanmeasurehowmuchgrowthacompanyearnintermofsale,assetsandprofitsforitsowncapital.Themeasureofsuccessofamanagercanbeseenfromtheabilitytocreateprofitability.Increasingprofitabilityisthemostimportanttaskforamanger.Managersareconsistentlyproportionofdebtisgreaterthanequity.Profitabilityratioisusedtoshowhowmuchprofitisderivedfromthecompanyperformance.Theformulaisasfollows:
ROA=Earningsaftertax
TotalAssets
Leverageisastrategythatcompaniesusedtoincreaseassets.Itpaysshort-termandlong-termdebts.Theyusefixedassetstoincreasingcompanyincome.Theyalsousedtomeasurelevelofsolvency.Theuseofdebtthatistoohighwillindangerthecompanybecausethecompanywillenterintoextremeleveragethatiscompanytrappedinhighlevelofdebtandit’sdifficulttoreleasethedebtburden.Thereforethecompanymustbalancehowmuchdebtisworthtakingandfromwhichsourcescanbeusedtopayoffdebt.Leveragehasnosignificanteffectonprofitability.Theformulaisasfollows
Debtofequityratio=TotalLiabilities
Totalshareholder’sequity
Tomeasuretheleverageofresearchersusingdebtofequityratio.DERistheratiothatillustratestheratioofdebtandequityincorporatefundingandshowtheabilityofthecompanyowncapitaltomeetsitsobligations.
Liquidityshowthecompanyabilitytomeetsitfinancialobligations.Italsoshowtheabilityofshort-termobligationssuchasloans,staffwages,billsandtax.Theyshowpositiveeffectonprofitability.Forexample:whenahumantakeoutaloantopurchaseanassetorwiththehopeofgrowingtheirmoneyinfuture.Currentdebtispaymentobligationsinoneyearandanormaloperatingcycleinbusiness.Currentratioistheratiobetweentheamountofcurrentassetsandcurrentdebts.Hereistheformulausedtocalculatethecurrentratio:
CurrentRatio=Currentassets
Currentliabilities
WorkingCapitalisthemoneyavailabletomeetyourcurrentobligations.Theexistenceofhighlevelofworkingcapitalturnoverindicatesthatthecompanyhasanopportunitytoachieveahighprofitgrowthinthefuture.Aratiothatmeasures,howefficientlyacompanyisusingitsworkingcapitaltosupportitssalesandgrowths.HereistheformulaofWorkingcapitalratio.
WorkingCapitalturnover=Sales
Currentassets–Currentliabilities
Previousresearch:
Previousresearchthatcansupportthisresearchisasfollows:Putranto[15]inhisresearchentitled”TheEffectofDiversification,Leverage,andInflationStrategiesontheProfitabilityofFood&BeverageCompanies”.Theresultsshowedthatthediversificationstrategyhadapositiveeffectoncompanyprofitability;leveragehadapositiveeffectoncompanyprofitabilitybutwasnotinaccordancewiththehypothesis,whileinflationdidnotaffectthecompany’sprofitability.
WijayaandIsnani[16]intheirstudyentitled”TheEffectofWorkingCapitalEfficiency,Liquidity,andSolvencyontheProfitabilityofPharmaceuticalCompanies”.TheresultsshowedthattheWorkingCapitalTurnover(WCT),DebttoEquityRatio(DER)partiallyhadanegativeandnotsignificanteffectonReturnonAssets(ROA).CurrentRatio(CR)hasapositiveandsignificanteffectonReturnonAssets(ROA).
YulianitaandIsynuwardhana[17]intheirstudyentitled”TheEffectofWorkingCapitalTurnover,Liquidity,andLeverageonProfitability(EmpiricalStudyofConsumerGoodsCompaniesListedontheIndonesiaStockExchangeforthe2015-2017Period)”.TheresultsshowedthatsimultaneouslyshowedWorkingCapitalTurnover(WCOT),Liquidity(CR),andLeverage(DER)significantlyinfluenceProfitability(ROA).Partially,WorkingCapitalTurnover(WCOT)hasasignificanteffectonprofitability(ROA),whileLiquidity(CR)andLeverage(DER)havenosignificanteffectonprofitability(ROA).
Framework:
Basedonthetheoreticalbasisandtheresultsofpreviousstudiesandtheproblemsthathavebeenraised,thenasabasisforformulatingahypothesis,thefollowingframeworkispresentedintheresearchmodelinthefollowingfigure:

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HYPOTHESIS:
Theresearchhypothesesproposedareasfollows:Ha1=WorkingCapitalTurnoveraffectsProfitability.Ha2=LiquidityaffectsProfitability.Ha3=Leverageaffectsprofitability.
RESEARCHMETHODS:Typesofresearchthisresearchiscausalresearch.Thetypeofresearchusedinthisstudyiscasualassociativeresearch(causalassociativeresearch).AccordingtoSanusi[11],associative-causalresearchisresearchthatlooksforrelationshipsbetweentwoormorevariables.Thepurposeofassociativeresearchistolookforrelationshipsbetweenonevariableandanother.
DefinitionofVariableOperations:
Thevariablesusedinthisstudyconsistedofthedependentvariableandtheindependentvariable.OperationalresearchvariablesontheEffectsofWorkingCapitalTurnover,Liquidity,andLeverageonProfitabilitycanbesummarizedintable1.1.
Table-1.1:OperationalizationofVariables
TypesofVariables OperationalDefinition Formula Scale
Dependent
Profitability Oneindicatortoassessthelevelofeffectivenessofmanagementperformanceinrunningacompanybylookingatthelevelofbenefitsobtained ROA Ratio
Independent
WorkingCapitalturnover Workingcapitalisalwaysoperatingwithinthecompanyaslongasthecompanyconcernedisinbusiness
Sales
Currentassets-CurrentLiabilities Ratio
Liquidity Theratiousedtomeasurethecompany’sabilitytomeetshort-termobligationsthatmustbemeet CurrentRatio Ratio
Leverage Theratiousedtomeasurehowmuchthecompanyisfinancedwithdebt DebttoEquityratio Ratio

ResearchSampleandPopulation:
Thepopulationinthisstudyisproperty,realestate,andbuildingconstructioncompanieswhichareincludedintheKompas100indexwhicharelistedontheIndonesiaStockExchange(IDX)during2017-2020.Thesampleispartofthepopulationusedtoestimatepopulationcharacteristics.Thesamplingtechniqueisusingpurposivesamplingtechnique.AccordingtoWidyani[11]thepurposivesamplingmethodistheselectionofsamplesonthebasisofthesuitabilityofthecharacteristicsofthesamplewiththespecifiedsampleselectioncriteria.Thesamplecriterioniswrittenbelow:
Property,realestate,andbuildingconstruction.
CompanieswhichareincludedintheKompas100indexwhicharelistedontheIndonesiaStockExchange(IDX)during2013-2018.Publishauditedfinancialstatementsfortheperiod.
2017-2020Thecompanydidnotexperiencealossduringthe.
Studyyear.Dataownedbythecompanyarecompleteandin.
Accordancewiththevariablesstudied.
Accordingtothecriteriaabove,thenumbersofsamplesusedwere13companiesduringthe6periodsnamely2013,2014,2015,2016,and2018.Thenthenumberofsamplesobtainedwas13companiesx6periods=78datatobeusedinthisstudy.
DATACOLLECTIONTECHNIQUE:
Datacollectionmethodsinthisstudyarelibrarystudymethodsanddocumentationmethods.Literaturestudymethodbystudyingandreviewingavarietyofliteraturesuchasvariousjournals,articlesandotherliteraturebooksthatsupporttheresearchprocess.Whilethedocumentationmethodistheprocessofcollectingdatabyrecordingdocumentsrelatedtothisstudy.
Analysismethod:
DescriptiveStatistic
HypothesisTesting
Classicassumptiontest
DescriptiveStatistic:
Descriptivestatisticsinthisstudyareusedtoprovideadescriptionofthecharacteroftheresearchvariableusingafrequencydistributiontablethatshowsthemodenumber,therangeofscoresandthestandardofdivision.
Variable N Minimum Maximum Mean Std.Deviation
X1 78 -0,22 0,40 0,05 0,086
X2 78 0,65 7,76 2,06 1,380
X3 78 0,28 5,37 1,63 1,212
Y 78 0,00 0,22 0,06 0,038
Thefollowingaredescriptivestatisticalresultsabouttheresearchvariablesasfollows:WorkingCapitalTurnoverVariableshaveanaveragevalueof0.05timeswithastandarddeviationof0.086times,whichmeanslargedatavariations(morethan0.038timesthemean).WorkingCapitalTurnoverVariablesrangefromthelowestvalueof-0.22times,in2017.Uptothehighestvalueof0.40timein2020.Liquidityvariableshaveanaveragevalueof2,06%withastandarddeviationof1.380%,whichmeansthatthedatavariationissmall(lessthan0.678%ofthemean).Liquidityvariablerangesfromthelowestvalueof0.65%,namelythecompany.
Classicassumptiontest:
Thisresearchwasconductedwithasimpleregressionanalysis.Theuseofsimpleregressionanalysismustbefreefromtestingclassicassumptions.Forthisreason,beforeasimpleregressionanalysisiscarriedout,classicalassumptionsmustbetestedfirst.Testingclassicassumptionsisdoneusingthenormalitytest,multicollinearitytest,heterokedasticitytestandautocorrelationtest.
Hypothesistesting:
Inthisstudytheauthorsusedthreeindependentvariablesandthreedependentvariables.Theanalyticalmethodusedtotestthehypothesisisthemultipleregressionmethod,namelyregressionusedtofindouthowmuchinfluencetheindependentvariablehasonthedependentvariable,withasimplelinearregressionanalysisthataimstomeettheresearcher’sexpectationsregardingtheEffectofWorkingCapitalTurnover,Liquidity,andLeverageagainstProfitability.
ResearchResultsandDiscussion:

EffectofLiquidityonProfitability:

Basedontheresultofthet-testshowsthattheliquidityvariabledoesnotaffectProfitability.Noeffectofliquidityonprofitabilityindicatesthatincreasedliquiditycannotincreaseitsprofitabilityandfundmanagement,especiallyincurrentassetsthatarelessefficient.TheresultsofthisstudyareconsistentwiththeresultsofWahyulizaandDewita’sresearchbutnotconsistentwiththeresearchofBungaandSofie.

EffectofLeverageonProfitability:

Basedontheresultofthet-testshowsthattheleverageaffectsProfitability.LeveragehasapositiveeffectonProfitabilityseenthroughthecoefficientoftheleveragevariableispositive.Thusitcanbeconcludedthatleveragehasapositiveeffectonprofitability.TheeffectofleverageonProfitabilityshowsthatusingmoreoutstandingdebtcanincreaseprofitabilityandtheuseofdebtisappropriate.TheresultsofthisstudyareconsistentwiththeresultsofHenryPandopotanSliltonga’sresearchbutarenotconsistentwiththeresearchofAfirsaThomas.

Effectofworkingcapitalturnonprofitability:

Basedontheresultofthet-testshowsthattheworkingcapitalturnovervariabledoesnotaffectprofitability.Noeffectofworkingcapitalturnoveronprofitabilityshowsthatworkingcapitalisnothigh,anditsuseislesseffective,whichresultsinreducedsalessothatthecompany’sprofitabilitydoesnotincrease.TheresultsofthisstudyareconsistentwiththeresultsofSaributnotConsistentwiththeresearchofWahyulizaandDewita.

CONCLUSIONS:

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