31 the costs associated with management oversight. This will affect the level of debt
the company becomes larger along with the increasing cost of supervision.
4. Factors Affecting Capital Structure
Horne and Wachowicz 2008: 430, the factors affecting capital structure, among others; interest rate, stability of income, asset composition, asset risk
levels, the large amount of capital required, the state of capital markets, management properties, the size of a company. One of the functions of financial
manager is to meet funding needs. In doing these tasks a financial manager confronted the presence of a variation in spending, in the sense that sometimes the
company better to use funds from debt debt, But sometimes a company better if you use funds from their own capital equity. Therefore, the financial manager in
the operations need to be trying to meet a specific target on the balance between the amount of debt and the amount of equity capital that is reflected in the
companys capital structure.
a. Liquidity 1 Definition Liquidity
Fred Weston in Kashmir 2014: 129-130 find that the original not in cashmere mention that liquidity is the companys ability to meet obligations
debts of short-term. This means that if the company is billed, the company will be able to satisfy the debt, especially debt that is due. In other words, liquidity
serves to demonstrate or measure the companys ability to meet its obligations, have matured, both liability to parties outside the company liquidity entity as
32 well as in the company the companys liquidity. Thus, one can say that. the
usefulness of this ratio is to determine the companys ability to finance and fulfill obligations debt at the time billed.
According Kieso, Weygandt, and Warfield 2010: 190, is the liquidity is Liquidity describes the amount of time that is expected to Elapse until an asset
is Realized or otherwise converted into cash or until a liability has to be paid. Which means that liquidity describes the amount of time expected to be achieved
until the asset is realized or converted to cash or to the obligation to pay. Meanwhile, according to James O. Gill in Kashmir 2014: 130 mentions
the liquidity measures the amount of cash or number of investments that can be converted or converted to cash to pay expenses, bills, and all other obligations that
have matured. Liquidity or often also referred to as the working capital ratio is the ratio used to measure how its liquid a company. The trick is to compare
components in balance, ie total current assets to total current liabilities short-term debt. Assessment can be done for some period so visible development company
liquidity from time to time. Meanwhile, according to Tampubolon 2013: 40 The liquidity ratio
indicates the level of the relative ease of an asset to readily convertible into cash with little or no impairment, as well as the level of certainty about the amount of
cash that can be obtained. Cash is the most liquid of assets, other assets may be relatively illiquid or less liquid depending on how fast these assets can be
converted into cash, for example; securities securities. While the assets are illiquid example; buildings, land including illiquid assets because it is not easy to
33 sell. To sell the building and the land is not only necessary match the price, but
also to look for interested buyers. Components of current assets, cash and securities seen as liquid assets.
Receivables at risk and maturity structure different. To convert receivables into cash factoring requires a buyer. Because of the risk and maturity in receivables,
of course, buyers are only willing to buy at a price which is lower than the value of the receivables. Therefore, to convert receivables into cash is needed pieces
discounted Of the value of the receivables, or have to wait until the receivables due. Thus receivables are considered less liquid than the Cash and Securities.
Meanwhile, according to Hery 2015: 150 the liquidity ratio is the ratio that indicates the companys ability to meet obligations or to pay short-term debt.
In other words, the liquidity ratio is the ratio that can be used to measure how far level companys ability to repay short-term liabilities that is due soon. If the
company has the ability to repay short-term liabilities at due then the company is said to be a company that is liquid. Conversely, if the company does not have the
ability to repay short-term obligations at maturity, the company is said to be a company that is not liquid. To meet short term obligations are due soon, the
company must have a level of availability of a good amount of cash or other current assets which can quickly be converted, or converted into cash.
The liquidity ratio is often also known as the working capital ratio the ratio of current assets, which is the ratio used to know liquid a company. The
working capital ratio is calculated by comparing the total current assets to total current liabilities.
34 Measurement and evaluation of this ratio can be done for some period in
order to see the development of the companys liquidity level conditions from time to time Hery, 2015: 150.
There are two results of the assessment of the measurement of liquidity, ie if the company is able to meet its obligations, the company said in a liquid state.
Conversely, if the company is unable to meet these obligations, the company said in an illiquid.
2 Objectives and Benefits of Liquidity
According to Kashmir 2014: 132-133 the purpose and benefits of liquidity are as follows:
a To measure a companys ability to pay obligations or debt immediately due when billed. That is, the ability to pay obligations it is time paid according
to schedule predetermined time limit date and specific month. b To carve the companys ability to pay short-term liabilities with current
assets overall. That is the amount of the obligation under the age of one year or equal to one year, compared with total current assets.
c To measure a companys ability to pay short-term liabilities with current assets regardless of dosage or receivable. In this case the current assets
less stocks and debt considered lower liquidity. d To measure or compare the amount of preparation that exists with the
companys working capital e To measure how much cash is available to repay debt.
35 f As a means planning ahead, especially with regard to cash planning and
debt. g To see the conditions and the companys liquidity position over time by
comparing it to some period. h To see the weaknesses of the company, of each component in current assets
and current liabilities. Being a trigger tool for the management to improve its performance, by
looking at the ratio of liquidity that exists at the moment. Meanwhile, according to Hery 2015: 151 liquidity ratio provides many
benefits to the parties concerned. The liquidity ratio is not only useful for the company alone, melainkanjuga for pihakluar company. In practice, there are many
benefits that can be derived from the ratio of liquidity, both for the owner of the company, the companys management, as well as other stakeholders related to the
company, such as investors, creditors, and suppliers. Through the liquidity ratio, the owner of the company as the principal can
assess the ability of management as an agent to manage the funds that have been entrusted, including funds used to pay short-term obligations of the company. On
the other hand, through the liquidity ratios, management can monitor the availability of the amount of cash, especially in relation to the fulfillment of the
obligations that will soon be due. In addition to the internal side of the company, the liquidity ratio is also useful for external parties. Investors are very concerned
about the liquidity ratio, especially in the case of cash dividends, while the creditor concerned in terms of return on the principal amount of the loan and
36 interest. Creditors and suppliers will usually provide loans or credits to companies
that have good liquidity. Here are the objectives and benefits of the overall liquidity ratio:
a To measure the companys ability to pay its obligations or debt that will soon be due.
b To measure the companys ability to pay short-term obligations by using the total current assets.
c To measure the companys ability to pay short-term obligations by using very smoothly assets without taking into account merchandise inventory
and other current assets. d To measure the level of availability in the companys cash to pay short-
term debt. e As a financial planning tool in the future, especially with regard to the
planning of cash and short-term debt. f To see the conditions and the companys liquidity position over time by
comparing it during some periode Hery, 2015:151.
3 Type Liquidity Ratio
According Tampubolon 2013: 40 determines the level of corporate liquidity liquidity ratios are used, among other things:
1 Current Ratio 2 Quick Ratio
3 Absolute Liquidity Ratio
37 In this study the authors used or Current Ratio Current Ratio. According to
Hery 2015: 152 The current ratio is the ratio used to measure a companys ability to meet its short term obligations are immediately due to the use of total current
assets available. In other words, the current ratio describes how large amount of available liquid assets of the company as compared to total current liabilities.
Therefore, the current ratio is calculated as the quotient between total current assets to total current liabilities.
Companies must continuously monitor the relationship between the magnitude of current liabilities with current assets. This relationship is especially
important to evaluate the companys ability to meet its short-term liabilities using current assets. Companies that have more current liabilities than current assets, the
company typically will experience liquidity problems when its current liabilities due.
b. Profitability 1 Understanding Profitability
