41 funds that are embedded in total assets. This ratio is calculated by dividing net
income to total assets. The higher the return on assets means the higher the amount of net profit generated from each rupiah funds that are embedded in total
assets. Conversely, the lower the return on assets means that the lower the amount of the net profit generated from each rupiah funds that are embedded in total
assets.
c. Solvency
1 Solvency Definition According to Kashmir 2014: 151 solvency or leverage is used to measure
the extent of the companys assets are financed with debt. That is how much the debt burden borne by the company as compared to its assets. In a broad sense it is
said that solvency is used to measure a companys ability to pay all its obligations, both short term and long term if the company is dissolved.
Meanwhile, according to Hery, 2015: 162 The solvency ratio or ratios leverage is a ratio used to measure the extent to which the companys assets are
financed with debt. In other words, the solvency ratio or ratios leverage is a ratio used to measure how much the debt burden must be borne by the company in
order to meet the asset. In broad terms, the solvency ratio is used to measure the companys ability to meet all its obligations, both short term liabilities and long
term liabilities.
42 According Munawir 2004: 32 solvency demonstrate the capacity or
ability of the company to pay off its debts, both short-term and long-term if the company is liquidated. A company that solvable means the company has equity
or capital sufficient to pay off all his debts. Conversely, companies that are not solvable means the company has insufficient capital to pay off the debt so that the
company will have difficulties to obtain additional loans from creditors before the company adds to its own capital. This situation led to the company is difficult to
hold the expansion and increased production. According to Harahap 2009: 306, the leverage ratio is a ratio that
measures how much the company is financed by a liability or an outside party with the ability of companies represented by equity. According to RJ 2010: 331,
the leverage ratio is a ratio that measures how far the company dibelanjai with debt. In a broad sense it is said that the solvency ratio leverage ratio was used to
measure a companys ability to pay all its obligations, both short term and long term if the company is dissolved. If the ratio is high then the fund with more and
more debt, making it difficult for companies to obtain additional loans because the company feared not being able to cover its debts with assets owned, with a low
ratio of the smaller companies are financed with debt. Use of solvency for the company provides many benefits to be gained,
either low or high. According to Fred Weston in Kashmir 2014: 152 solvency has several implications following:
43 a Creditors expect equity funds provided by the owner as a safety margin.
Meaning that if the owner has a small fund as capital, the biggest business risk to be borne by creditors.
b By procuring funds through debt, the owners benefit, in the form of still retained possession or control of the company.
c If the company gets more revenue from funds loaned compared with the interest to be paid, the return to the owner enlarged.
In practice, if the results of the calculation, the company proved to have a high solvency, this will impact the emergence of a greater risk of loss, but also there
are also great opportunities for profit. Conversely, if the company has a lower solvency ratio would have a smaller risk of loss as well, especially when the
economy declines. This impact also resulted in low levels of the return return when the economy is high.
Therefore, financial managers are required to manage the solvency ratio well so as to balance the returns with a high degree of risk. Should be observed
also that the size of this ratio is highly dependent on loans owned by the company, in addition to its assets equity.
Measurement solvency or leverage is done through two approaches, namely:
a measuring balance and the extent to which the loan is used for capital; b through profit and loss approach.
44
2 Objectives and Benefits of Solvency
According to Rivai 2013:264 The purpose and benefits of solvency ratios are: a To assess and determine the ability of the companys position on the
obligations of the other party; b To assess and determine the companys ability to fulfill permanent
obligation; c To assess and determine the balance between the value of assets, especially
fixed assets to capital; d To assess and determine how much the companys assets are financed by
debt; e To assess and determine how much debt the company affecting the
management of assets; f To assess and determine or measure how much a part of every penny of
their own capital as collateral long-term debt; g To assess and determine how many loans that would soon be billed there
are so many times their own capital. h Based on the results of the analysis of the solvency ratio, the company
obtained information on matters relating to financing, including knowing the companys ability to meet all obligations. Furthermore, based on the
results of the analysis.
45 i Financial managers are expected to carefully decide and adopt policies that
may be necessary to balance the existing alternative sources of financing, which is between financing through debt financing through the capital.
3 Type Solvency Ratio
In this study, the solvency ratio used in this study was Debt to Equity Ratio DER According Darsono and Ashari 2005: 54, Debt to Equity Ratio is the
ratio that indicates the percentage of the provision of funds by the shareholders to the lender. The higher the ratio, the more endah corporate funding provided by
the shareholders. From the perspective of the ability to pay long-term liabilities, the lower the ratio, the better the companys ability to pay long-term liabilities.
c. Company Size 1 Understanding Company Size
