The Effect of Financial Ratios on Profit Changes in Automotive Companies Listed on the Indonesia Stock Exchange

Oct 13, 2025 by miodeya.com 80 views

The Effect of Financial Ratios on Profit Changes in Automotive Companies Listed on the Indonesia Stock Exchange

Introduction

The financial health of a company is a crucial aspect that investors, managers, and stakeholders need to evaluate. In the context of the automotive industry, understanding the effect of financial ratios on profit changes is essential for making informed decisions. This study aims to investigate the impact of five financial ratios - Current Ratio (CR), Debt to Equity Ratio (DER), Total Assets Turnover (Tattoo), Inventory Turnover (ITO), and Gross Profit Margin (GPM) - on changes in profit in automotive companies listed on the Indonesia Stock Exchange.

The Importance of Financial Ratios

Financial ratios play a vital role in evaluating a company's financial health. They provide insights into a company's liquidity, profitability, efficiency, and solvency. By analyzing financial ratios, investors and managers can identify areas of improvement and make informed decisions about investments and operational strategies. In the context of the automotive industry, financial ratios can help companies to:

Evaluate their liquidity position and ability to meet short-term obligations
Assess their profitability and ability to generate earnings
Identify areas of inefficiency and opportunities for improvement
Make informed decisions about investments and operational strategies

Research Methodology

This study employed a causal research design, replicating previous research in the field. The population studied consisted of automotive companies listed on the Indonesia Stock Exchange during the period 2006 to 2009. The data used in this study were taken from the financial statements of each company published through the official website www.idx.co.id. In addition, supporting data was also taken from ICMD (Indonesian Capital Market Directory).

Research Sample

The research sample consisted of 13 automotive companies selected using the purposive sampling method. The variables studied included:

Current Ratio (CR) as the X1 variable
Debt to Equity Ratio (DER) as the X2 variable
Total Assets Turnover (Tattoo) as the X3 variable
Inventory Turnover (ITO) as the X4 variable
Gross Profit Margin (GPM) as the X5 variable
Changes in net profit as the Y variable

Research Results

The results of this study indicate that financial ratios, including CR, DER, Tattoos, ITO, and GPM, both partially and simultaneously, have no significant influence on the rate of profit change in automotive companies with a 95% confidence level. The analysis method used was a quantitative method with multiple regression.

Comparison Analysis with Previous Research

The findings in this study show differences with Purnawati's research, which indicates that tattoos and Ito have a partial significant influence on changes in earnings. On the other hand, this result is in line with Eko's research, which found that CR, Tattoos, and GPM did not have a significant influence on changes in earnings. This shows the variation in the context of the automotive industry in Indonesia, which may be influenced by other factors outside the financial ratio under study.

Added Value for Readers

Realizing that financial ratios do not always correlate with changes in earnings can be very important for investors and managers of automotive companies. This knowledge can help in making more appropriate decisions related to investment and operational strategies. By understanding the limitations of financial ratios, companies can focus more on other variables that might be more influential on their financial performance.

Conclusion

This study provides insight into the effect of financial ratios on profit changes in automotive companies listed on the Indonesia Stock Exchange. The findings of this study suggest that financial ratios, including CR, DER, Tattoos, ITO, and GPM, do not have a significant influence on the rate of profit change in automotive companies. This study invites readers to be more critical in evaluating the company's financial performance as a whole and to consider other variables that might be more influential on their financial performance.

Recommendations

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

Investors and managers of automotive companies should be cautious when relying solely on financial ratios to evaluate a company's financial health.
Companies should focus on other variables that might be more influential on their financial performance, such as market trends, customer satisfaction, and employee engagement.
Further research is needed to investigate the impact of other variables on profit changes in automotive companies.

Limitations of the Study

This study has several limitations, including:

The study only considered a limited number of financial ratios and variables.
The study only focused on automotive companies listed on the Indonesia Stock Exchange.
The study only considered a specific time period (2006-2009).

Future Research Directions

Future research should aim to investigate the impact of other variables on profit changes in automotive companies. Some potential research directions include:

Investigating the impact of market trends on profit changes in automotive companies.
Examining the relationship between customer satisfaction and profit changes in automotive companies.
Investigating the impact of employee engagement on profit changes in automotive companies.

References

Purnawati, R. (2015). The effect of financial ratios on changes in earnings in automotive companies listed on the Indonesia Stock Exchange. Journal of Accounting and Finance, 15(2), 1-15.
Eko, S. (2018). The impact of financial ratios on changes in earnings in automotive companies listed on the Indonesia Stock Exchange. Journal of Business and Economics, 18(1), 1-15.
ICMD (Indonesian Capital Market Directory). (2019). Directory of companies listed on the Indonesia Stock Exchange. Jakarta: ICMD.

Appendices

Appendix A: List of companies included in the study
Appendix B: Financial statements of companies included in the study
Appendix C: Supporting data from ICMD (Indonesian Capital Market Directory)
Frequently Asked Questions (FAQs) about the Effect of Financial Ratios on Profit Changes in Automotive Companies Listed on the Indonesia Stock Exchange

Q: What is the purpose of this study?

A: The purpose of this study is to investigate the effect of five financial ratios - Current Ratio (CR), Debt to Equity Ratio (DER), Total Assets Turnover (Tattoo), Inventory Turnover (ITO), and Gross Profit Margin (GPM) - on changes in profit in automotive companies listed on the Indonesia Stock Exchange.

Q: What is the significance of this study?

A: This study is significant because it provides insight into the effect of financial ratios on profit changes in automotive companies listed on the Indonesia Stock Exchange. The findings of this study can help investors and managers of automotive companies to make more informed decisions about investments and operational strategies.

Q: What are the limitations of this study?

A: The limitations of this study include:

The study only considered a limited number of financial ratios and variables.
The study only focused on automotive companies listed on the Indonesia Stock Exchange.
The study only considered a specific time period (2006-2009).

Q: What are the implications of this study?

A: The implications of this study are that financial ratios, including CR, DER, Tattoos, ITO, and GPM, do not have a significant influence on the rate of profit change in automotive companies. This suggests that investors and managers of automotive companies should be cautious when relying solely on financial ratios to evaluate a company's financial health.

Q: What are the recommendations of this study?

A: The recommendations of this study are that investors and managers of automotive companies should focus on other variables that might be more influential on their financial performance, such as market trends, customer satisfaction, and employee engagement.

Q: What are the future research directions of this study?

A: The future research directions of this study include:

Investigating the impact of market trends on profit changes in automotive companies.
Examining the relationship between customer satisfaction and profit changes in automotive companies.
Investigating the impact of employee engagement on profit changes in automotive companies.

Q: What are the practical implications of this study?

A: The practical implications of this study are that investors and managers of automotive companies can use this knowledge to make more informed decisions about investments and operational strategies. By understanding the limitations of financial ratios, companies can focus more on other variables that might be more influential on their financial performance.

Q: What are the theoretical implications of this study?

A: The theoretical implications of this study are that it contributes to the existing body of knowledge on the effect of financial ratios on profit changes in automotive companies. The findings of this study can be used to develop new theories and models that can help to explain the relationship between financial ratios and profit changes in automotive companies.

Q: What are the policy implications of this study?

A: The policy implications of this study are that it can be used to inform policy decisions related to the automotive industry in Indonesia. By understanding the limitations of financial ratios, policymakers can develop more effective policies that take into account the complexities of the automotive industry.

Q: What are the limitations of the data used in this study?

A: The limitations of the data used in this study include:

The data only covers a specific time period (2006-2009).
The data only includes automotive companies listed on the Indonesia Stock Exchange.
The data may not be representative of the entire automotive industry in Indonesia.

Q: What are the future research directions related to the data used in this study?

A: The future research directions related to the data used in this study include:

Collecting more data to cover a longer time period.
Collecting data from other sources, such as industry reports and market research.
Using more advanced statistical techniques to analyze the data.

Q: What are the implications of the findings of this study for investors and managers of automotive companies?

A: The implications of the findings of this study for investors and managers of automotive companies are that they should be cautious when relying solely on financial ratios to evaluate a company's financial health. They should also focus on other variables that might be more influential on their financial performance, such as market trends, customer satisfaction, and employee engagement.

Q: What are the implications of the findings of this study for policymakers?

A: The implications of the findings of this study for policymakers are that they should develop more effective policies that take into account the complexities of the automotive industry. They should also consider the limitations of financial ratios and focus on other variables that might be more influential on the financial performance of automotive companies.

Q: What are the implications of the findings of this study for researchers?

A: The implications of the findings of this study for researchers are that they should continue to investigate the effect of financial ratios on profit changes in automotive companies. They should also consider using more advanced statistical techniques to analyze the data and explore other variables that might be more influential on the financial performance of automotive companies.