(WCTA), Debt to Equity Ratio (DER), Total Assets
Turnover (TAT), and Net Profit Margin (NPM) toward
Return on Equity (ROE)
(Case study of Top 10 Manufacturing Companies based on Forbes Magazine
Indonesia in 2015 that listed in Indonesia Stock Exchange period 2008-2013)
By
in partial fulfillment of the requirements for
Bachelor Degree in Economics Major in Management
2015
i
APPROVAL SHEET
The Panel of Examiners declares that the Skripsi entitled “Analysis The
Influence of Working Capital to Total Assets (WCTA), Debt to
Equity Ratio (DER), Total Assets Turnover (TAT), and Net Profit
Margin (NPM) toward Return on Equity (ROE) (Case study of Top
10 Manufacturing Companies based on Forbes Magazine Indonesia
in 2015 that listed in Indonesia Stock Exchange period 2008-2013)”
that was submitted by Hafsa Hermala Sari was assessed and approved
to have passed the Oral Examinations on 6 th April, 2015.
Filda Rahmiati, BBA, MBA
Chair – Panel of Examiners
Examiner I
This Skripsi entitled “Analysis The Influence of Working Capital to
Total Assets (WCTA), Debt to Equity Ratio (DER), Total Assets
Turnover (TAT), and Net Profit Margin (NPM) toward Return on
Equity (ROE) (Case study of Top 10 Manufacturing Companies
based on Forbes Magazine Indonesia in 2015 that listed in Indonesia
Stock Exchange period 2008-2013)” prepared and submitted by Hafsa
Hermala Sari in partial fulfillment of the requirements for the degree of
Bachelor of Economics with a concentration of Banking and Finance in
the Faculty of Business has been reviewed and found to have satisfied
the requirements for a Skripsi fit to be examined. I therefore recommend
this Skripsi for Oral Defense.
Cikarang, March 25 th 2015
Acknowledge By, Recommended By,
Head, Management Study Program Advisor
iii
ORIGINALITY
I declare that is Skripsi, entitled Analysis The Influence of Working
Capital to Total Assets (WCTA), Debt to Equity Ratio (DER), Total
Assets Turnover (TAT), and Net Profit Margin (NPM) toward
Return on Equity (ROE) (Case study of Top 10 Manufacturing
Companies based on Forbes Magazine Indonesia in 2015 that listed
in Indonesia Stock Exchange period 2008-2013)” is, to the best of my
knowledge and belief, an original piece of work that has not been
submitted, either in whole or in part, to another university to obtain a
degree.
iv
ABSTRACT
This research is about to analyze the influence of working capital to total
assets, debt to equity ratio, total assets turnover, and net profit margin
toward return on equity. The problem stated in this research is about
there is a difference between theory and the results of previous studies.
The objective of this study is to analyze the partial and simultaneous
significant influence of WCTA, DER, TAT, and NPM toward ROE. The
methodology used in this research is quantitative research method using
secondary data. The sampling method used is purposive sampling, with
criteria that the manufacturing company and financial analysis data are
from annual report each company. The analysis of this research is using
multiple regression analysis. With significant level of 0.05, the result of
multiple regression shows that partially, WCTA have a negative and not
significant influence, DER have a negative significant influence, TAT
and NPM have a positive significant influence toward ROE. While
simultaneously all of the independent variable are significantly influence
the ROE. The coefficient of determinant in this research is 26.1%.
Keywords: WCTA, DER, TAT, NPM, ROE
v
ACKNOWLEDGEMENT
Bismillahirrohmanirrohim
Today I finish my skripsi. Finally I have done one step of my life levels. I have been
faces so many experience during this skripsi and it became the lessons to me. After
all I would have never reached the point of finshing this skripsi without help and
support of others. Because of that, I would like to kindly thank them.
First of all, I would like to say thank you very much to Allah SWT for always
guided me in every step I take during this skripsi. I always pray to give me a straight
way so I would not loss when doing my skripsi and finally I reached this step. Ya
Allah ya Rabb, Alhamdulillah. Thank you so much for the whole things you made
for me. All praises to Allah SWT.
My Ibu, Yositha Sefta Maria and My Bapak, Fauzi Fuazt. I really really thanks to
them because of them I can passed my hard time phase. Thank you, Ibu and Bapak
for all the prays that goes to me in every time, it always meaningful for me and I
would need your pray in every time. Thank you for the unstoppable support for me
even when I am not in the good mood you always cheering me up and you always
sharing your love and smile for me. Bu, Pak, there is nothing greatest and beautiful
besides your love and smile for me. I love you both and I never stop to loving you
both. I am a woman now but “daddy’s little girl” will always in me.
My Mama Nurtifa Akma and My Papa, Hery. Thank you Mam and Pap for always
pray for me, even we are separated in hundred miles, your pray is always guided me.
Thank you for your kindness and Thank you for always sharing your love for me. I
feel it, Mam, Pap. I always feel your love indeed. I love you.
vi
My oldest brother, Awaludin Laksana Juangga. Hi bro, finally I made it. Thank
you for your support to me and thank you for always visiting me during the skripsi.
For my young and youngest brother, Satria Maulana Putrandia and Saldan Bayu
Yuska. Thank you my little hero for the support and love and all of the things. I love
you.
My all lecturers at President University. Thank you for your dedication in education,
your words of wisdom, and indirect life lesson that you have been giving to me.
Especially Mr. Iman Heru Wijayanto, MBA as my advisor, and Mr. Vinsensius
Jajat K., SE., MM., MBA., thank you for always give me some advices and the
information until I finish my skripsi.
And now, my loyal best partner, Abdil Muttaqin. I would like to say thanks for you
to always being there for me in my sadness, happy, got stressed, well you always
being there to cheering me up. It’s been one of the greatest times of my life since I
know you and be close to you. Thank you for being an owner half of my heart.
My best girlfriends Laras Hening Basuki, Putri Citra Arnidewi, Nabila Alzena,
Ajeng Dwi Sarastri, Maylinda Jharina Thaha, and Mustika Haryati. Thank you
for always support me during this skripsi and always want to know how far I do the
skripsi so I can finish the skripsi faster. Thank you girl, you always be the part of my
life.
My President University mates, Laora Dwi Ariana, Tan Julia Christine Fransisca,
Endin Zainudin, Yorico Yohanes Lampus, Muhammad Fikri, Ni Putu Vanny
Christina, Erynda Bhita Safhira, Lia Marcello, Alexandria King, Pandu Rizki
Akbar, and also to all of my friend that I cannot mention one by one. Thank you
guys for always be a good friend. Love.
Alhamdulillah Hirobbil’alamin
SKRIPSI ADVISER RECOMMENDATION LETTER ............................................ ii
DECLARATION OF ORIGINALITY ....................................................................... iii
1.2. Problem Identification .................................................................................... 4
1.4. Research Objectives ....................................................................................... 6
1.6.1 Scope ....................................................................................................... 7
1.6.2 Limitations .............................................................................................. 8
1.7.2 For the Manufacturing Company ............................................................ 9
1.7.3. For the Investors ..................................................................................... 9
1.7.4. For Students of President University ...................................................... 9
1.7.5 For Academic Community ...................................................................... 9
CHAPTER II LITERATURE REVIEW .................................................................... 10
2.1. Theoretical Review ...................................................................................... 10
2.1.4. Profitability ........................................................................................... 22
2.3.1. The Influence of WCTA toward ROE .......................................................... 29
2.3.2. The Influence of DER toward ROE .......................................................... 30
2.3.3. The Influence of TAT toward ROE ........................................................... 30
2.3.4. The Influence of NPM toward ROE .......................................................... 30
2.4. Theoretical Framework .................................................................................... 31
3.4.1. Dependent Variable ................................................................................... 37
Classical Assumptions in this research include the Normality, Multicollinearity,
Heteroscedasticity, and Autocorrelation test. ...................................................... 39
3. Heteroscedasticity Test ................................................................................ 42
3.5.3. Hyphothesis Test ....................................................................................... 45
4.1. Company Profile .............................................................................................. 48
4.3. Descriptive Data ............................................................................................... 54
4.4.2. Hypothesis Test ......................................................................................... 63
CHAPTER V CONCLUSION AND RECOMMENDATION ................................... 70
5.2. Conclusion ........................................................................................................ 70
5.2. Recommendation .............................................................................................. 71
Table 3.1 Characteristics of Quantitative and Qualitative method ............................. 34
Table 3.2 List of Manufactured Company Listed on IDX .......................................... 35
Table 3.3 List of Equation ......................................................................................... 39
Table 3.4 Durbin Watson ........................................................................................... 44
Table 4.1 Descriptive Statistics .................................................................................. 54
Table 4.2 Tolerance and VIF Value ............................................................................ 59
Table 4.3 Durbin Watson ........................................................................................... 62
Table 4.4 T-Test Result .............................................................................................. 63
Table 4.5 F-Test Result .............................................................................................. 65
Table 4.6 Adjusted R² Table ....................................................................................... 66
xi
Figure 3.3 Heteroscedasticity Test Example.............................................................. 43
1.1. Background of Study
The company is one form of business that are looking for an advantage or profit,
which run in the field of trade, in the production of goods, and in the business
services that has an organizational structure, management, location and the
employees. According to (Kansil 2001) The Company is any form of business entity
that operates any type of business that is permanent and continuous, and established,
work, and is domiciled in the territory of Indonesia for the purpose of gain or profit.
In this developing economics, every company competes to produce good
performance for their own company. Performance of every company is really
affected to the flow of their financial. In this part (Juliana and Sulardi 2003) said that
the public will measures the success of the company based on its performance. The
company performance can be assessed through the financial statements presented on
a regular basis each period. According to Brigham and Endhart (2003) the accounting
information regarding the company's operations and financial position can be
obtained from the financial statements. Accounting information in the financial
statements is very important for businesses as investors in decision making. The
investors will choose their investment in the company which provides a high return
for their advantages.
In the Statement of Financial Accounting Standards (SFAS) or Pernyataan Standar
Akuntasi Keuangan (PSAK) Framework for the Preparation and Presentation of
Financial Statements state that the financial statements has purposed to provide
information regarding the financial position, performance and shifting in financial
2
position of the company that is useful for a large number of users in making
economic decisions. For economic decision making, the business person needs
information about the company's financial condition and performance. One example
of economic decision is when making a decision to do the prediction and estimation
of profit growth.
In order that the information can be useful, the information should be relevant or
appropriate. Relevant means the information is qualified if the information can be
influence economics decision of the users with evaluate the past, presents, and the
future and predict through the past.
In view of the financial performance of the company can use the financial statements
as an indicator of assessment. Profitability is the important thing to measure a
company's financial statements. ROE is the ratio that used to measure the
profitability of a company. ROE (Return on Equity) is a profitability ratio that
compares between net income (net profit) company with net assets (equity or
capital). This ratio measures how much of the profits generated by the Company
compared to the capital that deposited by shareholders.
In order to interpret the information that is relevant to the purposes and the users
concerns have developed a set of analytical technic that are based on financial
statements that have been published. One of the technic which applied in the business
practice is the financial ratio analysis.
According to Simamora (2002), ratio analysis is an important way to declare
meaningful relationship betweeen the components of the financial statements. The
Ratio describes a relationship beween one certain number with another number, and
by using the analytical tools which is ratio that explain or describe the analyzer
which good or bad the financial position of each company. In general ratio can be
groupped into four (4) basic types, namely Liquidity Ratio, is ratio that measures a
company’s ability to meet its short-term financial obligations, Solvability Ratio /
3
Leverage, is a ratio that measures how far the company meet the debt of Activity
Ratio, is the ratio that measures how effectively the company uses its financial
sources, Profitability Ratio, is the ratio that measures the result from the policies and
decisions.
In using the liquidity ratio, leverage ratio, activity ratio, and profitability ratio each
has a different ratio techniques. The Liquidity ratio using the Working Capital to
Total Assets (WCTA), the Solvability ratio/Leverage using Debt to Equity Ratio
(DER), the Activity ratio using Total Assets Turnover (TAT), and for the
Profitability ratio using Net Profit Margin (NPM) to determine the financial ratios
toward Return on Equity (ROE) in the Manufacture Company.
According to the research of Takarini and Ekawati (2003) states that liquidity ratio
that has significant positive influenced toward profitability one year ago is Working
Capital to Total Assets (or named as WCTA), WCTA shows the ratio between
working capital (that is current assets minus current liabilities) toward total assets.
The higher of WCTA shown the higher of working capital that obtained by the
company compare to the total assets. With a large working capital, the company's
operations can be going well so that the income will increase and it can increase the
profits. However, the research that conducted by Suwarno (2004) showed that
WCTA has no significant effect on earnings profitability next year.
Debt to Equity Ratio (named as DER) shows a comparison between the total debts to
equity (Ang, 1997). The higher of DER showed higher use of debt as a source of
corporate funding. This can pose considerable risk for the company when the
company is unable to pay such obligations at maturity, so it will disrupt the
continuity of the company's operations. In addition, the company will be faced with
high interest costs that can reduce profitability of the company.
Total Assets Turn over (TAT) is a comparison between sales with total assets of each
company which the ratio is describes the ratio of total asset turnover rate in a certain
4
period. Total assets turnover is a ratio that indicates the level of efficiency of the
overall assets of the company in generating certain sales volume. Total assets
turnover is a ratio that describes the asset turnover measured by the volume of sales.
So the greater this ratio is better, which means that the assets can be quickly spun and
reach the profit and shows the more efficient use of overall assets in generating sales.
In other words, the same amount of assets that can increase sales volume if the assets
turn over enhanced or enlarged.
According to Asyik and Soelistyo (2000) in their research shows that the profitability
ratio which has siginificant influenced toward the profitability is Net Profit Margin
(NPM) and Gross Profit Margin (GPM). NPM is a comparison between the net profit
after tax (that is profit before income tax minus income tax) to net sales (net sales).
This ratio measures a company's ability to generate net income to achieved total net
sales of the company.
Based on empirical evidence that connected to the financial ratios (WCTA, DER,
TAT, and NPM) towards Return on Assets (ROE) still showed different results, this
research is examine how the influence of the financial ratios toward profitability,
especially in the sector manufacturing industry in Indonesia Stock Exchange (IDX)
the period 2008 to 2013. Selection of a manufacturing company in IDX because the
manufacturing industry is the major industry groups listed on the Stock Exchange
and the selection of the manufacture company into this research is listed as the top 50
of companies based on Forbes Magazine Indonesia.
1.2. Problem Identification
The assessment of the financial performance of a company is very important for
every user or to the people which concerned of the company. Performance of a
5
company can improve its target consumers and investors to use the company as a
turnover of investors and consumers.
Based on the difference between the profitability of the group of companies and
between periods, and there is dissimilarities (inconsistency) between the researchers,
the research was conducted to examine the effect of Working Capital to Total Assets
(WCTA), Debt to Equity Ratio (DER), Total Assets Turnover (TAT), and Net Profit
Margin (NPM) toward Return on Equity (ROE) (Case study of Top 10
Manufacturing Companies based on Forbes Magazine Indonesia in 2015 that listed in
Indonesia Stock Exchange period 2008-2013) to get the real results of the analysis.
1.3. Statement of the Problem
This research is about Analysis The Influence of Working Capital to Total Assets
(WCTA), Debt to Equity Ratio (DER), Total Assets Turnover (TAT), and Net Profit
Margin (NPM) toward Return on Equity (ROE) (Case study of Top 10
Manufacturing Companies based on Forbes Magazine Indonesia in 2015 that listed in
Indonesia Stock Exchange period 2008-2013) Then, there are statements of the
problem:
1. Is there a partial positive significant influence of Working Capital of Total
Assets (WCTA) toward Return on Equity (ROE)?
2. Is there a partial negative significant influence of Debt Equity Ratio
(DER) toward Return on Equity (ROE)?
3. Is there a partial positive significant influence of Total Assets Turnover
(TAT) toward Return on Equity (ROE)?
4. Is there a partial positive significant influence of Net Profit Margin
(NPM) toward Return on Equity (ROE)?
6
5. Is there a simultaneous significant influence of Working Capital of Total
Assets (WCTA), Debt Equity Ratio (DER), Total Assets Turnover (TAT),
and Net Profit Margin (NPM) toward Return on Equity (ROE)?
1.4. Research Objectives
Based on statement of the problem above problems then the objectives of this study
are:
1. To analyze the partial positive significant influence of Working Capital of
Total Assets (WCTA) toward Return on Equity (ROE)
2. To analyze the partial negative significant influence of Debt Equity Ratio
(DER) toward Return on Equity (ROE)
3. To analyze the partial positive significant influence of Total Assets
Turnover (TAT) toward Return on Equity (ROE)
4. To analyze the partial positive significant influence of Net Profit Margin
(NPM) toward Return on Equity (ROE)
5. To analyze the simultaneous significant influence of Working Capital of
Total Assets (WCTA), Debt Equity Ratio (DER), Total Assets Turnover
(TAT), and Net Profit Margin (NPM) toward Return on Equity (ROE)
1.5. Definition of Terms
1. Working Capital of Total Assets (WCTA) shows the ratio between
working capital (which current assets minus current liabilities) toward
total assets. The higher WCTA showed the higher of working capital that
obtained by the company compare to the total assets.
7
2. Debt to Equity Ratio (DER) shows a comparison between the total debts
to equity. The higher of DER showed higher use of debt as a source of
corporate funding.
3. Total Assets Turn over (TAT) is a comparison between sales with total
assets of each company which the ratio is describes the ratio of total asset
turnover rate in a certain period. Total assets turnover is a ratio that
indicates the level of efficiency of the overall assets of the company in
generating certain sales volume.
4. Net Profit Margin (NPM) is a comparison between the net profit after tax
(that is profit before income tax minus income tax) to net sales (net sales).
This ratio measures a company's ability to generate net income to
achieved total net sales of the company.
5. Return on Equity (ROE) is a ratio that used to measure the profitability of
each company. Return on Equity (ROE) is a profitability ratio that
compares between net income (net profit) company with net assets (equity
or capital). This ratio measures how much of the profits generated by the
Company compared to the capital subscribed by shareholders.
6. Manufacturing Company is a company in which the process industries for
processing raw materials into finished goods that eligible to be marketed.
Manufacturing itself is a process that aims to transform raw materials into
finished goods that use technology.
1.6. Scope and Limitations
1.6.1 Scope
This research is conducted to analyze the influence of Working Capital of Total
Assets (WCTA), Debt Equity Ratio (DER), Total Assets Turnover (TAT), and Net
Profit Margin (NPM) toward Return on Equity (ROE) case study of Top 10
8
Manufacturing Companies based on Forbes Magazine Indonesia in 2015 that listed in
Indonesia Stock Exchange period 2008-2013.
1.6.2 Limitations
For some reasons in finishing this study, the researcher makes some limitations as
follow:
1. This research is done in five (6) year’s period, from year 2008 until 2013,
thus the result of this research is only valid for that period of time.
2. This research discusses four categories that expected to influence ROE
they are Working Capital of Total Assets (WCTA), Debt Equity Ratio
(DER), Total Assets Turnover (TAT), and Net Profit Margin (NPM).
3. The populations used in this study are 10 manufacturing companies based
on Top 50 companies on Forbes Magazines that listed in the Indonesia
Stock Exchange from 2008 until 2013 and complete financial ratios
correspond with the variable that will be used in this research.
1.7. Research Benefits
This research is meant to give valuable knowledge, information, and solution for the
following parties:
1.7.1 For the Researcher
To researcher, this is one of the requirements to fulfill everything that needed to
accomplish Bachelor Degree (S1 / B.Sc.) from President University. It is also giving
the researcher the experience in writing a research and having a deeper understanding
about banking sector of financial performance that can be analyze through the
influence of financial ratios toward profitability ratio (ROE).
9
1.7.2 For the Manufacturing Company
The result show the level of financial performance for Manufacturing Company
based on financial ratio (WCTA, DER, TAT, and NPM) in comparing to the ROE, it
is expected to become input and consideration and to the policy makers in making
policies relating to manufacturing companies in order to improve the company’s
financial performance by determining the factors that can influence the value of
ROE.
1.7.3. For the Investors
To give the information regarding the financial condition of a company for interested
parties or investors, that can be considered for the decision making process.
1.7.4. For Students of President University
The results of this study are expected to provide information, knowledge and also
being a reference for further research, especially for students at President University,
in understanding the influence of financial ratio toward profitability especially in the
manufacturing company.
1.7.5 For Academic Community
To President University especially examiners, this can be a reference to passed
researcher, to fulfill the qualifications in getting bachelor degree. This research can
be a contribution of thought specialized in the field of financial ratios analysis study
and provide a reference for conducting a related research topic.
10
2.1. Theoretical Review
2.1.1. Financial Statement
Financial Statement are use to determine the development of a company and those
financial’s condition. Basically, financial statement is kind of the result from the
report process, classifying and the summarizing from some case based on financial
nature with right direction as a communication tools between financial data or
activity of a company with related parties. Related parties toward the financial
statements are (Munawir, 2004):
1. The Owner
The owner of the company which the manager will be submitted as the leader
needs financial statement to measuring his performance in leading the company
and the successful manager could be measured by the profit that company’s got.
Based on the financial statement analysis, if the results that management
company achieved has not satisfied, then the owner of the company take an
action such as replace the management of the company or selling the shares.
2. Manager
For the manager itself, financial statement is his responsibilities to the owner of
the company as the trust that the owner’s given to him. Besides that, the financial
statement is used to measuring the cost of some company activities. To measures
the performance of every division has given the authority and responsibility
based on their task and determines the policies or new procedure to achieve best
result.
11
3. Creditor
Before the creditors make a decision to give or refuse the credit from any
company, first we need to know about the financial condition of related company.
Financial statement are needed to measure the company in pay its debt, interest
expense, and to know that the credit given is enough to insured from that
company.
4. Investor
The investors are responsible for the financial statement of each company as the
determiner policies of its investment, will the company have a good prospect and
gain an advantages for the company. The future prospect and company’s
development will continued to use in order to know the investment insured.
5. Government
Government will have a responsible toward financial statement of a company to
determine how much taxes must be paid.
6. Employees
The employees need financial statement to measure the company in provides
wages/salary and social insurance and measure whether the bonus are worthy
compared to the profit gained from the company in certain period.
In general, the common use of financial statement from accountant basically for
the user prediction. The financial statement are presented should be relevant with
the user needs. Therefore, financial statement analysis is very needed to
understand the information of financial statament (Asyik and Sulistyo, 2000).
According to Hanafi and Halim (2005), there are three basic forms of financial
statement: Balance Sheet, Income Statement, and Cash Flow.
12
1. Balance Sheet
Balance Sheet are use to describe the financial condition of the company at a
specific time. The Balance Sheet is a systematic report about assets, liabilities
and capitalof a company at a specific date/time. Balance Sheets consist of three
main parts: assets, liabilities, and capital.
Assets consists of (Ang, 1997):
1. Current Assets
Current assets are intangible assets which in cash and can be released in the
short-term period (less than one year). For the example: cash (property of the
company in cash), temporary investment/short-term (investment in bonds,
stock, and securities with maturities less than one year), accounts receivable
(accounts receivable arising from the credit sales), inventory (inventory of the
goods purchased and goods produced, either raw materials, semi-finished or
finished goods).
2. Non-current Assets
Non-Current Assets are intangible assets which cannot be released in cash but
can be released in the long-term period (more than one year). For the
example: bonds, lands, building, and machinery.
Liabilities is a financial liability to other parties who have not been fulfilled.
Debt is a source of funds/capital of company from creditors. Debt can be
divided into two (Ang, 1997):
1. Current Liabilities
Current Liabilities are liabilities which has maturities less than one year. For
the example: Short-term bank loans, notes payable, and accounts payable
(debt arising from purchasing goods in credit).
13
2. Non-current Liabilities
Non-current liabilities are liabilities which has maturities more than one year.
For the example: bank loans, long-term notes, bonds, and loans to
shareholders.
Capital or equity is right or part that owned by the owner of the company
indicated in thw heading of capital, surplus and retained earnings. Capital or
equity also meant the excess value of assets owned by the company of all its
debts (Munawir, 2004).
2. Income Statement
Income statement is a systematic statement of income, the cost of the income
earned during the certain period (Munawir, 2004). According Mamduh M. Hanafi
and Abdul Halim, in the book Analysis of Financial Statements (2002), Income
Statement is summarizing the result of the company activities in certain
accounting period. Income Statement itself has its elements as follows:
1. Income
Is the inflow or assets increasing in a company's or settlement of liabilities
(compensation both) during a certain period, arising from the selling goods,
delivery of services, and other income elements.
2. Cost
Is the increases of equity or uses during a certain period which arising from
selling goods, delivery of services, and the other.
3. Profit
Is the increases in net assets that arising from the transactions or another and
causing by the condition that influence the net assets.
14
4. Loss
Is the decreases from net assets that arising from the transactions or another
and the condition that influence the net assets.
3. Statement of Cash Flow
This statements are presenting about information of cash flows in or out at a
period which is the result of the principal activities of the company, which is
operating, investing and financing activities. Operating activities include
transactions involving the production, sale, receive of goods and services.
Investment activities include the purchase or sale of investment buildings, plant
and equipment. Financing activities include transactions to obtain funds from
bonds, debt repayment shares and emissions (Hanafi and Halim, 2005).
2.1.2. Financial Statement Analysis
Financial statement which the meaning can be seen in the previous statement can be
analyzed in many ways. Before going any further, the financial statement analysis
can be defined in many kind of word. According to Sofyan S.Harahap (2006), the
financial statement analysis is divided into two, analysis and financial statement. The
word of analysis is to solve or describe one unit into the smallest unit, while the
financial statement is the statement that described its financial condition and the
result of company performance in a certain period. The point of the statement above
is the financial statement analysis is to describe the financial statement items become
smaller information units and see the relationship which significant or got an
meaning between one another between the quantitative data as well as data on non
quantitative in order to determine the condition deeper financial extremely important
in the process of generating a fixed decision.
15
According to Sofyan S.Harahap, in book of Critical Analysis of Financial Statement
(2006), one of the important task after the end of the year is to analyze financial
statement of a company. This analysis based on financial statements that have been
prepared. Objective analysis of the financial statements are as follows:
1. Screening
This analysis has a purpose to determine the situation and condition of a
company’s financial statement without directly to the field.
2. Understanding
Following the financial condition and the result of a company.
3. Forecasting
This analysis were performed tp predict the financial condition of a company in
the future.
4. Diagnosis
This analysis are intended to see the possibility of any problems could happened,
whether in management, operations, financial, or the other problems withing the
company.
5. Diagnosis
This analysis were performed to asses the management performance in managing
the company.
2.1.3. Financial Ratio Analysis
Financial ratio is a statement which simplify the information describes about
relationship between one and another ratios. These simplify method can easier to
16
maintain the relationship between one and another ratio and it can compared with
another ratio, and in the end the result of the information will be shown and we can
make assessment for it. The Financial analysis is a main tool that used to make a
prediction of the company development in the future. The information and
description of the financial development of one company can be obtained in doing
several interpretation from the financial statement itself, which is connected the
elements exist in the financial statement such as all the assets with the other assets,
liabilities with the other liabilities, liabilities with the assets, balance sheet with the
income statement, will be obtained some of description about the financial condition
of a company. The following will presented several definition of Financial Ratio
Analysis by economists:
According to Munawir (2007) that financial statement as follow: “The ratios are
describes about the relationship or comparison (mathematical relationship) between
certain amount with the other amount by using analysis tools that is ratio. The ratio
will be explained or described to the analyzer about good or bad the condition or
financial position of a company practically if the number of the ratio is being
compared with the number of the comparison ratio that used as standardization”.
Sofyan (2006) state that “Financial ration is the number that generate by the result of
the comparison between one and another ratio which relevant and significant”.
Muchlis (2007) also state that “Ratio analysis is an analysis tools that very helpful if
it is compared with the standard ratio.
2.1.3.1. The Objectives and Benefits of Financial Ratio Analysis
The financial ratio analysis mainly aims to have an overview about good or bad the
financial condition of a company when doing an analyzed. Basically from the result
of analysis, the management will obtain the information about the strength and
weakness of the company. Those information will help the manager in understanding
17
what will the company do and it will help the manager to make an important decision
in the future. The financial ratio analysis is not only important for the management
side but it’s important too for the external side. For the external, the financial ratio
analysis is important to obtain an overview about the financial development of a
company. By knowing the financial development, the company can decide whether
to invest or not in that company.
The benefits of financial ratio analysis is to know if there is any strength or
weaknesses of the company’s financial for the years ago. By comparing the number
of the financial ratio with the standards established will obtain the other benefits that
can be known whether the financial aspects of certain companies are above or below
standard. If the company in below standard, the management will find out what
factors causes and it will take the fiscal measures to be able to raise the company’s
ratio back.
2.1.3.2. Types of Financial Ratio Analysis
Dennis (2006) state that financial ratio analysis is a best method use to obtain the
description about financial condition of the whole company. This analysis is use as
internal analysis for company’s management to determine the result of financial
gained to the future and as external analysis for the creditors and investor is to
determine the policies in make a loans and investing of a company. The financial
ratio analysis divided into two types based on variant uses in the analysis, which are
(Ang, 1997) :
1. Univariate Ratio Analysis
Univariate Ratio Analysisis financial ratio analysis which used one variate in
doing the analysis. The example is Profit Margin Ratio, Return on Asset (ROA)
and Return on Equity (ROE)
18
2. Multivariate Ratio Analysis
Multivariate Ratio Analysis is financial ratio analysis which used more than one
variety in doing the analysis. The example is Alman’s Z-Score and Zeta Score.
Financial ratio is a comparison between two data’s which contained in the financial
statement in a company. Financial ratio is used by a creditor to determine the
company performance to show the ability of a company in pay the debts (Dennis,
2006).
Financial ratios were categorized in different terms, based on its analysis purposed.
According to Nugroho (2003), several financial ratio that often used by researcher in
achieving their goals is profitability ratio to measuring the company ability in to
gaining profit in sales, total assets, equity, and liquidity ratio, to measuring the
company’s ability to fulfilled short-term obligation on time. Brigham and Daves
(2001) and Meythi (2005) state that financial ratio were categorized become liquidity
ratio, solvability ratio (leverage ratio), and activity ratio, and profitability ratio.
Weygand et. Al (1996) and Meythi (2005) were categorizing the financial ratio into
three, which are liquidity ratio, profitability ratio, and solvency ratio. In general
financial ratios were categorized into liquidity ratio, leverage ratio, activity ratio, and
profitability ratio (Riyanto, 1995).
1. Liquidity Ratio
Liquidity ratio shows the company’s ability to resolve the current liabilities (less
than one year). Liquidity ratio use in this research is Working Capital to Total
Assets (WCTA). Working Capital to Total Assets (WCTA) is comparison between
current assets minus current liabilities in current assets. According to Takarini
and Ekawati (2003) liquidity ratios which are Working Capital to Total Assets
(WCTA) has a positive significant toward profitability. WCTA shows the ratio of
working capital (current assets minus current liabilities) to total assets. If the
19
WCTA increasingly high, the greater working capital acquired companies
compared to total assets. With a large working capital, the company's operations
will be going well, so that the income increases and it will increasing the profits
of the company.
In this study, the liquidity ratio is peroxide with WCTA, because based in the
previous research; the liquidity ratio is the most influence for the profit grows.
WCTA can be formulated as follows (Riyanto, 1995).
Current assets in form of a cash, inventories, and trade receivables (income from
sales). Current assets in form of trade payable, taxes payable and current
maturities of long-term debt. Total assets are a total from the current assets with
fixed assets (ICMD, 2010).
2. Solvability / Leverage Ratio
Solvability ratio shows the company’s ability to fulfill the long-term liabilities.
Solvability use in this research is Debt to Equity Ratio (DER). Debt to Equity
Ratio (DER) is a comparison between total current liabilities and long-term debt
equity. According to Kashmir (2011), in practice the use of leverage by the
company has two effects, first it can increase the profit if the interest paid is less
than the return obtained from the use of debt and this condition occurs when the
economy declines, and the use of debt can also reduce the interest paid if the
profit is greater than the return obtained and this condition occurs when the
economy is high. Debt to Equity Ratio (DER) high will charge companies to
charge higher rates. The high cost of the interest to be paid by the company will
have an impact on corporate profits decline. Conversely, a low DER means the
cost of interest paid by the company are also low that corporate profits will
WCTA = ( – )

20
increase which will affect the company's profit growth. This ratio can be seen
from the negative relationship between leverage and profit growth.
DER can be formulated as follows (Riyanto, 1995):
Total liabilities are the total from the current liabilities plus long-term debt.
Owner’s equity is a source of fund from the owners of a company.
3. Activity Ratio
According to Ang (1997), activity ratio shows the ability and efficiency of the
company to use the assets owned or turnover from the assets. Activity ratio use in
this research is Total Assets Turnover (TAT). Total Assets Turnover (TAT) is a
comparison between net sales and total assets. TAT showed the efficiency of
using total assets company to support sales. The larger the company TAT showed
the more efficient to use of all assets company to generate net sales. The faster
turnover of assets of a company to support the activities of net sales, it will
increase the profits of the company (Ang, 1997). It is supported by Ou (1990) and
Fun and Sulistyo (2000) in his research showed that TAT positive effect on
earnings growth.
In this research activity ratio are peroxide with the Total Assets Turnover (TAT),
because in previous research this ratio is the most influence toward profitability.
TAT can be formulating as follows (Ang, 1997).
Net sales are the result from net sales for a year. Total assets are a total from total
assets plus fixed assets.
4. Profitability Ratio
According to Susan Irawati (2006), profitability ratio use to measure the
efficiency of the company's assets or the ability of a company to generate profit
for a certain period (usually semi-annual, quarterly, etc.) to see the company's
ability to operate efficiently. Profitability ratio use in this research is Net Profit
Margin (NPM). Net profit margin measures profitability after consideration of all
expenses including taxes, interest, and depreciation.
NPM can be formulated as follows:
NPM is one of the profitability ratios. NPM shows the company's ability to
generate net income to total net sales (RJ, 1995). The higher of NPM indicates
the higher of profit that company’s obtained. With a higher profit, the expanding
opportunities for the companies to increase their capital without going through
new debt, so that the income can be increased (Reksoprayitno, 1991).
Profitability is the important thing to measure a company's financial statements.
ROE is the ratio that used to measure the profitability of a company. ROE
(Return on Equity) is a profitability ratio that compares between net income (net
profit) company with net assets (equity or capital). This ratio measures how much
of the profits generated by the Company compared to the capital that deposited
by shareholders.
ROE =
2.1.3.3. The Advantages of Financial Ratio Analysis
Compared with the other technique analysis, financial ratio analysis has some
advantages, which are:
1. The ratio is kind of number or statistical overviews which easy to be read and
interpret.
2. The ratio can be substitute as the alternative of the financial statement
information were detailed and complicated.
3. The ratio can help a company to determine its position in the global
Industries.
Besides its advantages, financial ratio analysis has its weaknesses. According to
Sawir (2005), there are 4 weaknesses of financial ratio analysis, as follows:
1. The financial ratio analysis has difficulties in identification the industry
category from the company which run in several business fields.
2. The financial ratio is arranged from the accounting data and it’s influenced by
the definition and could be manipulated.
3. The average industry information are general data and it’s just estimated.
2.1.4. Profitability
Profitability can be operationally as differences between realized incomes that come
from the transaction in one period with related cost. Besides, IAI in Chairi and
Gozhali (2003) state that increasing the economic benefits during the accounting
23
period in a form of income or additional assets or liabilities decreasing that cause the
increases of equity which are not from the contribution of capital. The definition of
income held by the structure of the accounting nowadays is a profitability of
accounting is the differences between the measurement of income and expenses. The
size of the profit as a measure of the increase depends heavily on the accuracy of the
measurement of income and expenses. So in this case the profit is only a figure of its
own articulation and not defined in economic as well as the assets or debts (Chariri
and Widodo, 2003).
According Harahap (2005) profitability is an important figure in the financial
statements because several reasons such as: profitability is the basic for calculating
the tax, the guidelines in determining the investment policy and decision-making, the
basic for forecasting earnings and economic event of other companies in the future,
based the calculation and assessment of efficiency in running the company, as well as
a basis for performance appraisal or performance of the company.
Belkaoui in Chariri and Ghozali (2003) states that the profitability has several
characteristics are as follows:
1. Profitability are based on transactions that actually happened
2. Profitability based on the principle of periodization, which means that the
company's achievements in a particular period.
3. Profitability is based on the principle of revenue that requires special
understanding of the definition, measurement and recognition of revenue.
4. Profit requires measurement of the costs in the form of historical costs
incurred by the company to get a certain income.
5. Profitability is based on the matching principle (matching) between income
and expenses that are relevant and related to the income.
An appropriate comparison of revenues and expenses are described in the income
statement. The presentation of profit through the report is an important focus of the
24
company's performance. Performance of the company is the result of a set of
processes at the expense of several resources. The one of the company's performance
appraisal parameter is profitability.
The profitability can be calculated by deducted from the current profit with the profit
from previous period and then divided with the profit from the previous period
(Takarini and Ekawati, 2003).
2.1.4.2. The Factors that influenced the Profitability
According to the Hanafi and Halim (2005) said that the earnings growth is influenced
by several factors, which are:
1. The size of the company
The larger a company, then the accuracy of earnings growth is expected to be
higher.
Newly established company lacks experience in increasing profits, so the
accuracy is still low.
3. The level of leverage
If the company has a high debt level, the managers tend to manipulate
earnings so it can reduce the accuracy of earnings growth.
4. The level of sales
If the level of sales in the past is high, the level of sales in the future will be
higher, so the earnings growth will be higher.
5. Changes in previous profit
The higher the profit change in the past, the more unpredictable the profit
earned in the future.
2.2. Previous Research
Studies that analyze about the effect of independent variables toward dependent
variable have been done before by several researchers. Review of previous research
can be seen as covered in Table 2.1 below:
Table 2.1
Previous Research
1 Indarti
prediction toward
positive influence
toward Profitability
in 5%
positive significant
influence toward
2.3.1. The Influence of WCTA toward ROE
WCTA is one of the liquidity ratios (Riyanto, 1995). Liquidity Ratio shows the
company's ability to use the current assets of the company, so it is able to pay its
short-term debt on time required (Machfoedz, 1999).The higher of WCTA shown the
higher of working capital that obtained by the company compare to the total assets.
With a large working capital, the company's operations can be going well so that the
company is able to pay the debt and automatically the income will increase and it can
influence the profits (Reskoprayitno, 1991). The higher of WCTA will increase the
profit which will influence the profitability. This is because the efficiency of the
difference between current assets and current liabilities. Takarini and Ekawati (2003)
state that WCTA have positive effect on profitability for next year.
30
2.3.2. The Influence of DER toward ROE
DER is one of the solvability ratios. DER shows a comparison between the total
debts to equity (Riyanto, 1995).The higher DER showed the higher use of debt as a
source of corporate funding. This can cause considerable risk for the company when
the company cannot afford to pay the liability at maturity, and it will disrupt the
continuity of the company's operations. In addition, the company will be accepting
the high interest costs that can reduce company profit. This is state by research
Indarti (2000) which showed that the DER a negative effect on profit growth.
2.3.3. The Influence of TAT toward ROE
TAT is one of the activity ratios. TAT showed the efficiency of using total assets of
the company to support sales (Ang, 1997). The highest of the company showed its
TAT it will showed the efficiency of use the entire assets of the company to generate
net sales. The faster turnover of assets of a company to support the activities of net
sales, then the income will be increase that will affect to the higher of profit’s got
(Ang, 1997).This is supported by Asyik and Soelistyo (2000) in his research shows
that the positive affect on growth TAT toward profitability.
2.3.4. The Influence of NPM toward ROE
NPM is one of the profitability ratios. NPM shows the company's ability to generate
net income to total net sales (RJ, 1995). The higher NPM indicates that the greater
the net income derived from the company's net profit activities sales. With large,
expanding opportunities for companies to increase their capital without going
through new debt, that the income be increased (Reksoprayitno, 1991) . This is
supported Suwarno (2004) and Fun and Soelistyo (2000) in his research showed that
NPM significant positive effect on profit growth next year.
31
2.4. Theoretical Framework
This research will study about The Influence of Working Capital to Total Assets (
WTA), Debt to Equity Ratio (DER), Total Assets Turnover (TAT), and Net Profit
Margin (NPM) toward Return On Equity (ROE) (A Case Study of Top 10
Manufacturing Companies based on Forbes Magazine Indonesia in 2015 that listed in
Indonesia Stock Exchange period 2008-2013). The theoretical framework will use
some methods based on the independent variables (X1, X2, X3 and X4) affect the
dependent variable (Y). The independent variables in this research are Working
Capital to Total Assets (X1), Debt to Equity Ratio (X2), Total Assets Turnover (X3)
and Net Profit Margin (X4) and for dependent variable is Return on Equity (Y).
Figure 2.1 Theoretical Framework
Source: Adjusted by Researcher
2.5. Hypothesis
Hypothesis is a temporary allegation of the research that will be examined, based on
the literature review above then hypotheses that can be submitted as a temporary
answer to the problems of this study are as follows:
Hypothesis 1: Working Capital to Total Assets (WCTA) has a partial positive
significant influence toward Return on Equity (ROE)
Hypothesis 2: Debt to Equity Ratio (DER) has a partial negative significant influence
toward Return on Equity (ROE)
Hypothesis 3: Total Assets Turnover (TAT) has a partial positive significant
influence toward Return on Equity (ROE)
Hypothesis 4: Net Profit Margin (NPM) has a partial positive significant influence
toward Return on Equity (ROE)
Hypothesis 5: Working Capital to Total Assets (WCTA), Debt to Equity Ratio
(DER), Total Assets Turnover (TAT), and Net Profit Margin (NPM) have a
simultaneous significant influence toward Return on Equity (ROE).
33
3.1. Research Design
In doing this research the researcher used method to get the result. There are two
method that often used by the researcher which are Quantitative and Qualitative
method. Quantitative research gathers data in numerical form which can be put into
categories, or in rank order, or measured in units of measurement this type of data
can be used to construct graphs and tables of raw data. Qualitative research gathers
information that is not in numerical form. For example, diary accounts, open-ended
questionnaires, unstructured interviews and unstructured observations. Qualitative
data is typically descriptive data and as such is harder to analyze than quantitative
data.
According to Robert Donmoyer (in Given, 2008) Quantitative method is approaches
to empirical study to gather, analyze, and show data in numerical rather than
narrative. For this research, researcher use quantitative method since the purpose isto
analyze the influence and significant relationship between the independent variables
toward the dependent variable. Quantitative method use numbers to prove or
disapprove a hypothesis of the research. It provides fundamental connection between
empirical observation and mathematical expression of quantitative relationship
(Castellan, 2010). The numerical data collected can be generated by using software
like Statistical Package for the Social Science (SPSS), Views, and other statistical
Source: ACAPS (2012)
in study
study progress or afterwards
Test Theory Develop Theory
narrow
and broad
Reduction, control, precision
the parts
35
This research use one dependent variable, which is Return on Equity (ROE), and four
independent variables, which are Working Capital to Total Assets (WCTA), Debt to
Equity Ratio (DER), Total Assets Turnover (TAT), and Net Profit Margin (NPM).
The information gathered during period of 2008 – 2013.
3.2. Sampling Design
3.2.1. Population
Population in the statistics refers to a group of individuals with distinctive
characteristics of concern in a study. Margono (2010) said that "The population is all
the data which we are concerned in a scope and in specific time". The population
used in this study is the manufactured company that listed in Indonesia Stock
Exchange (IDX) in the period of the study (period 2008 – 2013).
Table 3.2
No. Company Name
3 PT. HexindoAdiperkasaTbk
4 PT. IndocementTbk
7 PT. ArwanaCitramuliaTbk
9 PT. Holcim Indonesia Tbk
10 PT. Martina BertoTbk
3.2.2. Sampling Technique
The sampling method were used for this research is purposive sampling. A form of
non-probability sampling in which decisions concerning the individuals to be
included in the sample are taken by the researcher, based upon a variety of criteria
which may include specialist knowledge of the research issue, or capacity and
willingness to participate in the research (Paul Oliver, 2006). The purposive sampling
criteria that applied in this research are:
1. The manufacturing company that listed on Indonesia Stock Exchange
during 2008 - 2013
2. The top ten greatest companies based on Forbes in 2015 and it’s existing
in Indonesia Stock Exchange.
3. The availability of its financial statement during 2008 – 2013.
3.2.3. Sample Size
By using purposive sampling technique, the researcher found that 10 greatest
companies based on Forbes magazine and it’s existing in IDX are eligible for this
research. The sample was taken by using panel data. Kuncoro Mudrajad (2003) state
that according to the time of collection, data divided into three types which are time
series, cross section and panel data. In this research, the researcher uses panel data.
Panel data, also known as longitudinal data or or cross-sectional time series data,
where the data were observed at more than two periods. A panel data should have n
is defined cases over t periods. Therefore, the total data (N) is n x t. In this study, the
n is defined by ten companies, while the t is 6, because the researcher uses six years
(2008-2013). Therefore, the sample size of this research is 60.
37
3.3. Research Instrument
In order to find the required material for the research, researcher is using software
called Microsoft Excel and SPSS 22.0. Microsoft Excel is a spreadsheet application
that features calculation, graphing tools, pivot tables, and a macro programming
language. The researcher uses Microsoft Excel to generate the regression model
analysis. According to its features, both Microsoft Excel and SPSS are common
software used to accomplish the research by establishing database and statistical data
processing. It also can make the analyzing process become faster and more efficient.
3.4. Definition of Operational Variables
The researcher uses the definition as the variables that will be measured. The
definition will be explained as follows:
3.4.1. Dependent Variable
Return on Equity (ROE)
The dependent variable use in this research is Return on Equity (ROE). Return on
Equity (ROE) is the ratio that used to determine the profit for the company.
3.4.2. Independent Variable
38
The Working Capital to Total Assets ratio is a liquidity ratio that expresses the net
current assets or working capital of a company as a percentage of its total assets
(Nayab, 2011).
Debt Equity Ratio (DER)
The Debt Equity Ratio is the ratio which the ratio that measure the company’s capital
structure. The capital structure is a permanently fund that consist of long-term debt,
preferred stock, and stockholder’s equity (Wahyono, 2002).
Total Assets Turnover (TAT)
The Total Assets Turnover is ratio that indicates the efficiency with which the firm
uses its assets to generate sales (Lawrence J. Gitman, 2006). Susan Irawati (2006)
states that Total Assets Turnover is the ratio that used to measure the effectiveness of
the assets utilization in generating sales of a company.
Net Profit Margin (NPM)
Net Profit Margin (NPM) is a ratio used to show the company's ability to generate net
profits.Net Profit Margin is the ratio between net profit and sales. This ratio is very
important for the operations manager for sales reflecting the pricing strategies
applied by the company and its ability to control operating expenses (Bastian and
Suhardjono, 2006).
Here is a table of the definition of operational variables from dependent and
independent variables:
Profit After Tax to
Current assets-Current
Liabilities to Owner’s
to Total Assets
Income to Net Sales
The researcher used descriptive quantitative method. The reason using this method is
to identify the growth of each variable.
3.5.1. Classical Assumption Test
Heteroscedasticity, and Autocorrelation test.
1. Normality Test
Normality test aim to test the regression of independent variable and independent
variable, are both variables have normal distribution or not. The best regression
model is normal distribution data or close to normal. The normality test can be
done through graphs and statistical analysis (Ghozali, 2005).
1. Graph Analysis
One of the easiest ways to see the normality of residuals is to look at the
histogram graph that compares the observational data from the normal
distribution. However, just by looking at the histogram it can be confusing,
especially for small sample sizes. Another method that can be used is to look at
normal probability plots that comparing the cumulative distribution from the
normal distribution. Basis for decision making of normal probability plot analysis
are as follows:
1. If the data is spread around and follow the direction of the diagonal line it
shows the pattern of normal distribution, means that the regression model
meet the normality assumption.
2. If the data is spread far from do not follow the direction of the diagonal line
it shows not normal distribution pattern, means that the regression model
did not meet the normality assumption.
Source www.xlstat.com
Figure 3.2
2. Statistical Analysis
Besides with the graph analysis, normality test can also be seen by statistical
analysis with the provision if the significant value in the variable is less than
the value of significant (α = 0.05) that has been determined then the data is
normally distributed. Conversely, if the significant value of the Kolmogorov-
Smirnov in the variable is greater from a predetermined value of significant (α
= 0.05), then the data were not normally distributed.
2. Multicollinearity Test
According to Ghozali (2005) the purpose of this test is to examine whether in
regression model was found a correlation between independent variables. In
good regression models there should be no correlations occurred among the
independent variables. Multicollinearity is situation that researcher have to
avoid, because it will not good for independent variable correlated strongly to
each other’s. To detect whether there is the Multicollinearity in the regression
model can be seen from tolerance value or Variance Inflation Factor (VIF).
The correlation between one or two independent variable can be determined
by looking at the Variance Inflation Factor (VIF) and Tolerance Value.
Procedures of testing Multicollinearity test are as follows:
1. If Tolerance is lower than 0 or bigger than 1, then there is
Multicollinearity.
2. If Tolerance is between 0 and 1, then there is no Multicollinearity.
3. If Variance Inflation Factor (VIF) is bigger than 10, then there is
Multicollinearity.
4. If Variance Inflation Factor (VIF) is lower than 10, then there is no
Multicollinearity.
3. Heteroscedasticity Test
Heteroscedasticity test is used for knowing whether the data is not normally
distributed and it also use to know if the variance terms of errors are
difference across observations. To analyze Heteroscedasticity, the researcher
uses the output from SPSS Version 21 through scatterplot graph. Z Prediction
(ZPRED) is the independent variables and S Residual (SDRESID) as
dependent variable. It can be seen from the scatter plot by looking at
43
distribution of residual value toward the predicted value. If the distribution is
spread randomly without any systematic pattern, then the data is passed the
Heteroscedasticity test. A good multiple regression models that has no
Heteroscedasticity problem will look like point a, b, c in the figure below:
Figure 3.3
4. Autocorrelation Test
The purpose of Autocorrelation test is to find whether there is a correlation
between a set of data in the same variable. Autocorrelation test only done for
time series data, while cross sectional data like questionnaire does not need it.
Autocorrelation test can be checked by doing Durbin-Watson statistical test
(DW test). If the outcome is lower than -2, it means that there is a positive
autocorrelation problem. If the outcome is more than +2, it means that there is
a negative autocorrelation problem. Meanwhile, if the result is between -2 and
+2 it means that there is no autocorrelation problem. Table below shows the
summary of Durbin Watson test:
Table 3.4 Durbin Watson
Source: www.takonyvtar.hu
3.5.2. Multiple Linear Regressions
This study uses multiple regression analysis model with the smallest quadratic
equations or ordinary least squares (OLS) to analyze the effect of Working Capital to
Total Assets (WCTA), Debt to Equity Ratio (DER), Total Assets Turnover (TAT),
and Net Profit Margin (NPM) toward Return on Equity (ROE), with the basic model
as follows:
X1 : WCTA (Independent Variable)
e : Standard Error
The regression model shows that the dependent variable (Y) is being affected by the
coefficient of independent variables (β1−4). It means that if the value of βi is positive
(+), then there is a positive relation between dependent and independent variable,
where the increasing value of βi will result to the increasing value of Y. Otherwise, if
the value of βi is negative (-), then there is a negative relation between dependent and
independent variable, where the increasing value of βi will result to the decreasing
value of Y.
3.5.3. Hyphothesis Test
1. Coefficient of Determination (R²)
The coefficient of determination (R²) was essentially measures how far the
model’s ability to explain variation in the dependent variable. Small value of R²
means the ability of the independent variables in explaining the dependent
variables is very limited. Value close to one means that the independent variables
provide almost all the information needed to predict the dependent variable
(Ghozali, 2005). In multiple regressions coefficient of determination is
symbolized as R². Meanwhile determinants, commonly used adjusted R², are used
to view the contribution of independent variables in explaining the dependent
variable. The range of R² is from lowest value of 0 to highest value (0 <R² < 1).
1. If R² = 0, it indicates that X explained 0% of variability in Y.
46
2. If R² = 1, it indicates that each point in the sample were on the regression line
(all errors are 0). Or in the other words, 100% of the variability in Y could be
explained by regression equation.
3. In developing regression model, a good model will have R² value close to 1.
When the number of independent variable is less than two, it is used R², while
when the independent are more than two, then it uses adjusted R². However, as it
is suggested by statistician, it is better to use adjusted R² to consider both of the
number of independent variables and sample size used (Berenson & Krehbiel,
2009). In this research, since there are more than two independent variables, the
value of adjusted R² is used.
2. F-Test
F-Test is used to determine whether all independent variables, which are used
together, have significant impact towards the dependent variable. This test will
generate two possibilities outcome:
F < F table, Ho is accepted. Means that all independent variables together are not
significantly influence the dependent variable
F > F table, Ho is rejected. Means that all independent variables together are
significantly influence the dependent variable.
Another way to done this test is by observing significant values of F with
significant level. This research is using 5% significant level or 0.05 significant
value. There will be two possibilities outcome, which are:
1. Significant F < 0.05, Ho is rejected. Means that all independent variables
together are significantly influence the dependent variable
2. Significant F > 0.05, Ho is accepted. Means that all independent variables
together are not significantly influence the dependent variable.
3. T-Test
T-Test determines whether each independent variable significantly affects the
dependent variable by comparing the value of t with t table. This test will
generate two possibilities outcome:
1. t < t table, Ho is accepted. Means that the independent variables have no
significant influence towards the dependent variable
2. t > t table, Ho is rejected. Means that the independent variables has
significant influence towards the dependent variable
Another way to done this test is by observing significant values of t with α
significant level. This research is using 5% significant level or 0.05 significant
values. There will be two possibilities outcome, which are:
1. Significant t < 0.05, Ho is rejected. Means that the independent variables
have significant influence towards the dependent variable
2. Significant t > 0.05, Ho is accepted. Means that the independent variables
have no significant influence towards the dependent variable.
48
1. PT. Ace Hardware Tbk
Ace Hardware was founded in 1924 by a small group of Chicago hardware store
owners. Ace changed the retailed landscape by allowing individual stores to
purchase merchandise in bulk to save money and buy at the lowest possible price.
In 1928, Ace stores are officially incorporated, ensuring for the founders right to
purchase, sell and even manufacture hardware. By year-end, 11 retailers are
joined the fledging company and its officially named Ace Stores, Inc. After that,
PT. Ace Hardware in Indonesia was established in 1995 as a subsidiary company
of PT. Kawan Lama Sejahtera, it is become #1 commercial and industrial
supplies company in Indonesia. PT. Ace Hardware Indonesia Tbk, is the master
franchise/license holder of ACE Hardware brand in the country, appointed by
ACE Hardware Corporation, USA.
2. PT. Jasuindo Tiga Perkasa Tbk
The company was established on July 10, 1991, in Sidoarjo, East Java, as PT
Jasuindo Tiga Perkasa. At first, the business scope was only general printing,
especially the printing of business documents. On April 16, 2002, PT Jasuindo
Tiga Perkasa became a public company that changed its name to PT Jasuindo
Tiga Perkasa, Tbk. Its shares are listed in the Jakarta Stock Exchange under the
code JTPE. PT Jasuindo Tiga Perkasa, Tbk. currently has three plants in
operation: the security document plant, plant producing Visa card, Master Card,
and other security cards, and business document plant. They are modern, set in
49
beautiful landscapes and outfitted with the latest system and equipment to support
the company’s performance.
PT. Hexindo Adiperkasa was established in November 28 th
, 1988. PT. Hexindo
Adiperkasa continued to success as the leading distributor of heavy equipment in
Indonesia. Mining projects provides the great prospect for the company known as
the master of the giant of heavy equipment. The line of business of the company
is sales of heavy equipment, parts support, and service support and full
maintenance contract remanufacturing. The vision of the company is emerging as
a leader in Indonesian heavy machineries industry, having world-class quality of
service for the ultimate satisfaction of stake holders. The mission of the company
are to become the most reliable partner in heavy machineries procurements,
having the expertise in providing the best solutions for products and services, to
continuously improve productivity and performance of employees in a more
conducive work environment, all at once supporting them in achieving
prosperity, to strengthen the presence in global community by contributing to
welfare of the society and the nation and to secure financial reward and
continuous growth to shareholders.
PT Indocement Tunggal Prakarsa Tbk. ("Indocement") is one of Indonesia's
major producers of quality cement and specialty cement products marketed under
the brand name "Tiga Roda". Indocement also owns several subsidiaries that
produce Ready-Mix Concrete (RMC), as well as manages aggregates and trass
mining. Established on 1985, the Company was formed as a merger of six cement
companies, which at the time owned eight plants. The first plant officially
operated in 4 August 1975. Indocement continues to increase the number of
plants, which now reached 12. Most of the plants are located in Java. Nine plants
50
are located in Citeureup Factory, Bogor, West Java, and has become one of the
world’s largest cement factories. Two plants are located in Palimanan Factory,
Cirebon, West Java, and one other plant is located in Tarjun Factory, Kotabaru,
South Kalimantan.
PT. Kalbe Farma Tbk was founded in September 10 th
1966 by 6 six brothers,
Khouw Tjoen Lip, Lip Khouw Hiang, Khouw Lip Swan, Boenjamin Setiawan,
Maria Karmila, F. Bing Aryanto. Kalbe Farma has considerably evolved from its
humble beginnings as a pharmacy business in the garage of the home run
founders in North Jakarta. PT Kalbe Farma Tbk is an Indonesia-based company
primarily engaged in manufacturing health and nutritional as well as
pharmaceutical products. Its business is classified into four segments:
prescription drugs, health products, nutritional products as well as distribution
and logistics. Its prescription drugs segment manufactures unbranded generic,
branded generic and patented drugs. Its health products segment offers over-the-
counter (OTC) therapeutic drugs, consumer health products as well as energy and
health drinks; some major brands under the segment are Woods, Procold, Extra
Joss and Hydro Coco. Its nutritional products segment manufactures a range of
products for infants, toddlers, children, teenagers, adults, expectant and lactating
mothers as well as elderly; some of major brands under the segment are
Prenagen, Milna, Diabetasol and Entrasol. The distribution and logistics segment
is operated through its subsidiary, PT Enseval Putera Megatrading Tbk.
6. PT. Semen Indonesia Tbk
The Company inaugurated in Gresik on December 7 Agustus1957 by the first
President with an installed capacity of 250,000 tons of cement per year, and
installed capacity in 2013 reach 30 million tons/year. On July 8, 1991 the
51
Company's share listed on the Jakarta Stock Exchange and Surabaya Stock
Exchange (now Indonesia Stock Exchange) and is the first state-owned
companies to go public by selling 40 million shares to the public. The
composition of the shareholders at the time: State of RI 73% and 27% people. In
September 1995, the Company made a Rights Issue I (Right Issue I), which alter
the composition of share ownership to the State of RI 65% and 35% people. On
June 15 September 1995 by PT Semen Gresik consolidate with PT Semen
Padang and PT Semen Tonasa. Total installed capacity of the Company at the
time of 8.5 million tons of cement per year.
7. PT. Arwana Citramulia Tbk
PT Arwana Citramulia Tbk (Arwana) is a public company listed on the main
board of Indonesian Stock Exchange (IDX) and traded under "ARNA" stock
code. The Company is dedicated to producing low cost ceramic tiles to serve
medium-low segment market nationwide. The products are sold under "Arwana
Ceramic Tiles" brand, a brand name that signifying quality product with
competitive pricing. In 2011 a brand new ceramic tiles with better quality,
namely "UNO," was introduced to capture the medium-high market segment.
Since its initial operation in 1995, Arwana has remained faithful in its core
business based on its competence to produce quality products with creative
designs. A wide variety of beautiful product-mix is offered including Embossed,
Marble, Plain Color, Granity, Strata, Rustic, Fancy Wood and Fancy Decorative.
The company’s vision is conceptualized due to the ideal desire which is strive for
by the company founder, and underlying the vision is the commitment to the
society. “To be the best company” is not only from business point of view, but
also including social responsibility in the capacity of a company whose existence
is deemed necessary and that is reliable within its stakeholders and society at
large. Our operational system is inspired by the spirit of creativity and gives
priority to innovative way of thinking and practices. Creativity and innovation
52
approach in order to enhance corporate value will be highly appreciated by
business society and surrounding society.
8. PT. Indofood CBP Sukses Makmur Food Tbk
ICBP was established on September 2009, as a separate entity after the internal
restructuring of the CBP Group of its parent company, Indofood, which has been
listed on the IDX since 1994. ICBP itself was listed on the IDX on October 7,
2010. The various business operations and product brands of ICBP have been
long established, with many enjoying leading positions in their respective market
segments. The vision of the company is the Leading Consumer Goods Company.
The mission of the company is to continuously innovate, focusing on Consumers’
needs, delivering great brands with unparalleled Performance, to deliver quality
products which are loved by consumers, to continuously improve our people,
processes and technologies, to contribute to the welfare of the society and
environment in a sustainable manner, and to continuously improve stakeholders’
value.
9. PT. Holcim Indonesia Tbk
Holcim is a pioneer and an innovator in Indonesia's fast-developing cement
sector, as the market for homes, commercial buildings and infrastructure expands.
We are the only provider of a fully integrated range of 10 cement types, concrete
and aggregates. We are building a unique franchise, Solusi Rumah, to deliver
complete, affordable housing solutions and upgrades, drawing on the skills of
over 49,000 Holcim-trained masons, 437 franchisees as of 2013 and a growing
telesales presence. The company operates three cement plants in Narogong-West
Java, Cilacap-Central Java, Tuban 1-East Java and a grinding facility in
Ciwandan-Banten with total capacity of 11 million tons of cement. We operate
multiple concrete batching plants, two stone quarries and an extensive logistics
network of warehouses and silos. In 2013, our Cilacap Cement Plant was one of
only a few businesses in Indonesia to receive a Gold PROPER rating from the
Ministry of Environment, the highest award in Indonesia for environmental and
waste management and the fourth time the plant has achieved this result. Our
Narogong Plant holds a Green PROPER rating for third time in a row. The same
year, we have attained first place in the Green Industry Awards for the fourth
year. We are also the only business to receive an Ozone Award recognising our
ongoing work to safely dispose of ozone depleting substances. For community
relations, Holcim programmes were recognised by corporate social responsibility
awards from Minister for Cooperatives and Small and Medium Enterprise and
local governments.
10. PT. Martina Berto Tbk
The company was founded in 1977 by Dr. HC. Martha Tilaar, (the late) Pranata
Bernard, and Theresa Harsini Setiady. In 1981, the company established the first
modern factory on Jl. Pulo Ayang No. 3, Pulogadung Industrial Estate, which
manufactures cosmetics and herbal medicine with brand "Sariayu-Martha Tilaar"
for the first time. In 1986, the Company established a second modern factory on
Jl. Pulo Kambing, Pulogadung Industrial Estate ("Pulo Kambing Factory"). Due
to the rapid sales growth, in 1995, the company transferred production of herbs to
Gunung Putri, Bogor. While the Pulo Ayang factrory transferred to a subsidiary
company, which is PT Cempaka Belkosindo Indah. It's manufactures cosmetics
with the brand "Mirabella" and "Cempaka". In 2005, PT Cempaka Belkosindo
Indah be merged with the company so that the brand "Mirabella" and "Cempaka"
also combined with the production at Pulo Kambing factory. Furthermore, Pulo
Ayang factory transferred and enable as a sales office aside to the company's
Distribution Center, located on Jl. Pulo Ayang No. 24-25, Pulogadung Industrial
Estate. In 1993, the company acquired PT Cedefindo, which the main business
areas are Contract Manufacturing (Makloon) in cosmetic products, as the
company's business expansion to upstream. Next, the company sells assets of the
54
plant in Gunung Putri and then continue to run the plant herbal medicine with the
rental agreement until the end of 2011.
4.2. Overview of Research Objective
Samples that used in this study are the Top 50 companies according to Forbes
Magazine Indonesia in 2015 are always present financial statements period 2008
to 2013 and present a complete ratio corresponding to the variable to be research.
So that the amount of data used are 60 data, which are taken from the 10
manufacture companies multiplied by 6 years (the number of research period).
Financial ratios in this research are obtained from each company’s annual report.
The maximum or minimum of profitability standard each independent variable
are from Bank Indonesia’s standard.
4.3. Descriptive Data
Descriptive data is used to show the total of data used in this research, and can
show the minimum, maximum, average value and standard deviation of each
variable research include ROE, WCTA, DER, TAT, and NPM. The results of
descriptive data can be seen in Table 4.1 as follows:
Table 4.1 Descriptive Statistics
55
Source: Output of SPSS
Based on Table 4.1 above shows that the total of data used in this study were 360
samples of data.
The table shows that the average of Working Capital to Total Assets (WCTA) is
0.2910% with the lowest data was -0.35% which is PT. Indofood CBP Sukses
Makmur in 2009 and for the highest is PT. Ace Hardware in 2009 with the
amount of 0.72%. The standard deviation of Working Capital to Total Assets
(WCTA) has a lower amount than average value (mean) which the amount of
standard deviation is 0.23234% while the amount of mean is 0.2910%. It shows
the data used in this variable has a small distribution because the standard
deviation value is lower than its average value (mean), so that the deviation of
Working Capital to Total Assets (WCTA) variable can be said is good.
The table shows that the average of Debt to Equity Ratio (DER) is 34.6688%
with the lowest data was 0.12% which is PT. Ace Hardware in 2009 and for the
highest is PT. Martina Berto in 2008 with the amount of 206.80%. The standard
deviation of Debt to Equity Ratio (DER) has a higher amount than average value
(mean) which the amount of standard deviation is 58.03775% while the amount
of mean is 34.6688%. It shows the data used in this var