THE USE OF FINANCIAL RATIOS AS PREDICTOR OF PROFIT GROWTH ON CONSUMER GOODS MANUFACTURING COMPANY LISTED IN INDONESIA STOCK EXCHANGE

Abstract

Business is an activity which produces goods and/or services for consumer. One of the strategies to achieve business goal is by improving company performance. The evaluation of a company’s performance gives a wide-ranging impact on decision-making by the parties concerned. The ratio analysis is a widely used tool to examine company performance. The ratios can be classified into categories such as liquidity ratios, activity ratios, leverage ratios, profitability ratios, and market ratios. However, until now there is no standard form used to predict the growth in corporate profit. Thus, the author wanted to examine further the use of financial ratios as predictor of company’s profit growth. The author collected and analyzed data of 24 manufacturing companies specifically in consumer goods sector based on JASICA (Jakarta Stock Industrial Classification)index. The period of research was based on financial period of company which was ended as of December 31th, it started from year 2008 to 2011. Purposive sampling method was filtered by using some criterion such as: (1) the company published audited financial statement as of December 31th during research period, (2) the company is a go public manufacturing company listed in BEI, (3) the company is classified as consumer goods company. Dependent variable used in the research is profit growth (PG). Independent variables used are current ratio (CUR), inventory turnover ratio (ITO), debt to equity ratio (DER), return on assets ratio (ROA), and price to book value ratio (PBV). The method used to analyze the hypotheses was multiple regression analysis. The research result showed that the use of some financial ratios such as current ratio, inventory turnover ratio, debt to equity ratio, return on asset ratio and price to book value ratio explained limited indication toward profit growth. Further test showed simultaneously these ratios have no significant effect toward profit growth. Partially only current ratio and price to book value ratio have significant effect within certain condition.