5 In this study, the companies that will be examined are Lippo Karawaci,
Bakrie Development, Ciputra Development, Sentul City, Bumi Citra Permai, Bekasi Asri Pemula, Alam Sutera Realty, and Agung Podomoro. The reason for the
selection of these companies is because the company is engaged in the same, as well as data from the company that supplied complete until 2014. The last reasons of the
selection of these companies are companies that are in the same grade, thus making the data obtained will be more specific.
From the description of the background research that has been described above, this research will be carried out to determine the effect of the current ratio,
activity ratio and debt ratio to profitability ratio and further research will be followed
by the title The Effect of Current Ratio, Activity Ratio, Debt Ratio, and Inflation on Profitability Ratio in the Real Estate Company in Indonesia Stock
Exchange 2010-2013 .
B. RESEARCH PROBLEM
1. Does current ratio have a significant impact on profitability ratio of Real Estate Companies in Indonesia Stock Exchange?
2. Does activity ratio have a significant impact on profitability ratio of Real Estate Companies in Indonesia Stock Exchange?
3. Does debt ratio have a significant impact on profitability ratio of Real Estate Companies in Indonesia Stock Exchange?
4. Does inflation has a significant impact on profitability ratio of Real Estate Companies in Indonesia Stock Exchange?
6 5. Do current ratio, activity ratio, debt ratio, and inflation simultaneously has a
significant impact on profitability ratio of Real Estate Companies in Indonesia Stock Exchange?
C. PURPOSE AND BENEFITS
The purposes of this analysis are: 1. To determine the impact of current ratio towards profitability ratio if Real Estate
Companies in Indonesia Stock Exchange; 2. To determine the impact of activity ratio towards profitability ratio if Real Estate
Companies in Indonesia Stock Exchange; 3. To determine the impact of debt ratio towards profitability ratio if Real Estate
Companies in Indonesia Stock Exchange; 4. To determine the impact of inflation towards profitability ratio if Real Estate
Companies in Indonesia Stock Exchange; 5. To determine the impact of current ratio, activity ratio, debt ratio, and inflation
towards profitability ratio if Real Estate Companies in Indonesia Stock Exchange And the benefits of this analysis are:
1. For General
As a reference to solve a problem that now happened at Real Estate industry in Indonesia Stock Exchange, so it can become the new reference for
other researchers who have the same concept with this study, particularly on the effect of the current ratio, activity ratio and debt ratio to profitability ratio.
7
2. For Researcher
This research is a kind of skill training which is expected to sharpen the scientific thinking pattern by applying theories that have been obtained during study
period, also increase the insight, knowing, and experience.
3. For Company
The result of this research can be as consideration in decision making process by management. This research also can make a company do a performance
comparison with the competitors so company can improve their performance.
4. For Investor
The information of financial distress prediction helps the investors as a suggestion in investment activity, whether they will continue to invest their
capital or to stop or delay their investment. However, the investors do not want to face the losses caused by investing their capital.
5. For Reader
This research can be used for additional information for the reader on the relationship between financial ratios, as a reference for other researchers to apply
the model to be made in this study to determine the effect on profits of financial ratios, and to-do more research in the same field.
8
CHAPTER II LITERATURE REVIEW
A. Financial Management
1. Definition of Financial Management
According to James C. van Home in Kasmir, 2010: 5, financial Management defined as all the activities that related with receiving, funding,
managing the assets by several purposes. This definition shows that financial management is related to how to get the fund for paying its business, how
manage the fund so that the goal of company can be reached, and how the company manage the assets effectively and efficient. Financial management
also can be defined as an art and science for managing money which contains of process, institution, market, and instrument related to money transfer among
individual, business, and government Brigham in Kasmir, 2010: 22.
2. Financial Management Scope
The scope of financial management is defined into two categories, those are Kasmir, 2010: 7-8:
a. Financial Service Financial field relates to design making and product consultation both to
individual, business, and government such as: Loan officers, Broker, and Financial Consultant.
b. Managerial Finance The activities relate to the task of financial manager in managing the
company’s fund such as: budget arrangement, financial forecast, cash
9 management, credit administration, searching the fund and doing
investment.
3. The Function of Financial Manager
According to Fred in Kasmir, 2010: 16, the functions of financial manager are planning, searching, and using the fund to maximize the value of
company, in other words, the activities related with decision of source and fund allocation.
The functions of financial manager are also defined as follows Pearson, 2011: 9:
a. Making investment decisions capital budgeting decisions. b. Making decisions on how to finance these investments capital structure
decisions. c.
Managing funding for the company’s day-to-day operations working capital management.
B. FINANCIAL RATIOS 1.
Definition of Financial Ratios
Financial ratios are the numbers which are got from the comparison of one post of financial statement with another post which has relevant and
significant relationship. For instance: Debt and Equity, Cash and Total Asset, Cost Production and Total Sales, etc. Harahap, 2004. Financial ratio
analysis has been use to assess company performance for almost as long as modern share markets have been around. Financial ratios are tools to help
with the interpretation of results and to allow for comparison to previous years, other companies and the industry sector.
10 Financial Ratios are ways of comparing and investigating the
relationships between different pieces of financial information. Using ratios eliminates the size problem because the size effectively divides out.
2. Kinds of Financial Ratios
According to Wasterfield, 2010:55, financial ratios are traditionally grouped into five categories:
a. Liquidity Ratios Measure the ability of a firm to meet its short term obligations and
reflect short term financial strength or solvency. b. Debt Ratios
Measure how far a company’s assets are paid using its debt. It means how much debt obligation is held by company compare to
its assets. In a big meaning, leverage ratios are used to measure the company’s ability for paying all its obligations both short-term and
long-term if the company is liquidated. c. Activity Ratios
Measure the company’s effectiveness in using its own assets. On the other word, these ratios are used to measure the level efficiency
of company resource utilization. The efficiency, with which assets are used, is reflected in the speed and rapidity with which they are
converted into sales. d. Profitability Ratios
Assess the ability of a company to earn profit. Such ratios give measurement of management effectiveness level of a company.
They are intended to measure how effectively a firm uses its assets
11 and manages its operations. This thing can be shown by profit
which is earned by sales and investment income.
C. ANALYSIS OF FINANCIAL PERFORMANCE
According to Ahmad Rodoni and Herni Ali 2014 is a number of financial ratios derived from the comparison of a financial statement items with more posts
that have a significant relationship. Financial ratios are very important in the analysis of the financial condition of a company.
Analysis of this ratio has advantages compared with other analytical techniques. The advantages are as follows: Ahmad Rodoni and Herni Ali, 2014
1. Financial ratios are numbers or summary statistics that are easier to read and interpret.
2. It is more simple replacement of the information presented financial statements is very detailed and complicated.
3. Knowing the companys position amid other industries. 4. Very useful for filling material in the decision-making models and
predictive models. 5. Standardize the size of the company.
6. It is easier to compare one company with another company or see the development of the company periodically.
7. It is easier to see the trend of the company and make predictions in the future.
Besides ratio analysis technique has advantages, it also has limitations that must be realized when its use. The limitations of ratio analysis it is: Ahmad Rodoni
and Herni Ali, 2014
12 1. The decision in choosing the right ratio that can be used for the benefit of
the wearer. 2. Limitations owned financial statements also be limitations techniques like
this: a.
Material calculation of ratios or financial statements and the ratio of the value of the acquisition is not a market price.
b. The value contained in the financial statements and the ratio of the
value of the acquisition is not the market price. c.
Classification in the financial statements may have an impact on the ratio.
d. The method of recording that is reflected in the accounting
standards can be applied differently by different companies. 3. If the data is to calculate the ratio is not available, will make it difficult to
calculate the risk. 4. It is difficult if the available data are not synchronized.
5. Two companies than could have been engineering and accounting standards used are not the same. Therefore, if the comparison could lead
to errors. Financial ratios are generally classified into four kinds, among others:
1. Liquidity Ratio 2. Activity Ratio
3. Debt Ratio 4. Profitability Ratio
13 Ratios are included in each group ratio can be explained as follows:
a Liquidity Ratio,
This measures the company’s ability to meet short-term obligations at maturity
Current ratio with a profitability ratio + because the current ratio formula itself current assets current liabilities. Current assets can
include cash, inventory, accounts receivable. Current debt = short-term debt to banks and debt that matures in almost a year.
The relationship, if the assets, cash and inventory increased, then most likely it happens because the profit increases.
b Activity Ratio,
This measures the company’s ability to use the available funds, reflected in the turnover of capital
Activity ratio formula: Net Sales Average Total Assets. Means if the activity ratio increases, net sales increased. If sales increase, a positive
impact to the profitability ratio. CR = Current assets
Current liabilities
AR = Cost of goods sold Average inventory
14
c Debt ratio,
Which measures the company’s ability to pay off debt if one day the company liquidated? This ratio also shows how much the company
paid for by outsiders or creditors.
Debt ratio to profitability ratio + because if a firms debt increases, it is usually the company that will carry out the debt for the purchase of
equipment and assets debt increases for later screened for business activities with the hope of increasing the profitability ratio.
d Profitability Ratio,
This measures the company’s ability to generate profits
Operating profit margin is the ratio between operating profit and sales. Operating profit margin is a ratio that describes what is usually called
pure profit earned on every penny of sales made. Operating profit is called pure pure in the sense that the number is
exactly what actually obtained from the companys operations by ignoring financial obligations in the form of interest and obligations to
the government in the form of tax payments. If the higher operatig profit margin will be better the operations of a company.
DR = Total Debt Total Assets
OPM = Operating Profits Sales
15
D. INFLATION 1.
