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
Company size is the amount of assets owned by the company. According to Horne and Wachowicz 2008: 745, a measure to determine the size of the
company is the natural log of total assets.
The size of the company is one of the factors considered in determining how much the company policy funding decisions capital structure to meet the
size or magnitude of the companys assets. If the company is getting larger, the greater the funds will be issued, either from debt or equity policy in maintaining
or developing companies.
46
5. The Effect of Independent Variables to Dependent Variables a. Effect of Liquidity on Capital Structure
Liquidity is the ability of a company to fulfill his obligations. The liquidity ratio can be described in a Current Ratio. Current ratio describes the ratio between
current assets by current liabilities. The greater the companys liquidity ratio indicates the greater the companys ability to meet its obligations Nugrahani
Sampurno, 2012.
b. Effect of Profitability on Capital Structure
Profitability is the companys ability to to obtain a profit. Brigham and Houston 2011: 176 said that the company with the rate of return on investment
is very high use of debt in relatively small quantities. High rates of return allow the company to fund its business activities through internally generated funds.
Return on Assets ROA is a profitability ratio that is used to measure the effectiveness of the company in generates profits by leveraging their assets. A
company that has profitability sufficient to finance its operations, do not need to increase the amount of debt of the company. Due to the greater profit of the
company, the greater the retained earnings that are able to be used in operations Nugrahani Sampurno, 2012.
47
c. Effect of Solvency on Capital Structure
