THE ANALYSIS OF FINANCIAL LEVERAGE OPTIMIZATION AT PT INDOFOOD SUKSES MAKMUR TBK

Abstract

The purpose of this research is to analyse and discuss financial leverage by using debt to total asset ratio and apply it to the case company of PT Indofood Sukses Makmur Tbk (INDF), then value the entire firm through discounting the expected cash flows to the firm at the firm's cost of capital that will gives future prospect to the case company operations to provide the optimal financial leverage. To achieve the optimal financial leverage, the method of valuation will be used by using discounted cash flows, often reffered to as "DCF". DCF valuation method will be applied to the case company PT Indofood Sukses Makmur Tbk (INDF) that is one of the biggest food and beverages sub-sector industry in Indonesia. The researcher used descriptive studies by qualitative approach and in order to gather and process the data, researcher uses secondary data and information used in this research comes from international journals, published books, articles, financial statements of Indofood Sukses Makmur Tbk (INDF) that listed in Indonesia Stock Exchange. As the results, researcher found that the optimal use of financial leverage to the case company of PT Indofood Sukses Makmur Tbk (INDF) is when the debt ratio weight is 0%. Researcher also found that as debt ratio weight increases, it affect various calculations. If debt ratio increases, then company become riskier, which affect on higher beta and higher cost of equity. Then as company borrows more money, the rating on the company will drops, which resulting in higher interest rate on debt and higher cost of debt. Cost of capital will also impact as debt ratio increases and overall impact in the valuation of enterprise value. Researcher proposes some recommendations for the company that from the result that the optimal financial leverage is 0% debt ratio, which means higher cash inflow and higher operating income. Apparently, based on previous journal that most of the food and beverages sub-sector industry have high inventory turnover, which cause high operating income. Therefore, researcher recommends that company with this condition should not use debt because company able to fund its operating activities with their cash inflows and operating income. Recommendation for the further researcher to forecast the income statement, balance sheet, and free cash flow using statistic tools such as spss or e-views.