Debt to Equity Ratio and Debt to Asset Ratio

Oct 13, 2025 by recoveryshake.com 47 views

Introduction

In the ever-competitive business landscape, understanding the factors that influence a company's profitability is crucial for its success. This study aims to analyze the effect of several financial variables on the profitability of real estate and property companies listed on the Indonesia Stock Exchange (IDX). The focus of this study lies in the working capital turnover, receivable turnover, inventory turnover, return on equity (ROE), debt to equity ratio (debt to equity ratio), and the ratio of debt to assets (debt to asset ratio) during the period 2007 to 2009.

Research Methodology

This study employs a quantitative approach with multiple regression analysis techniques to examine the relationship between the variables. The sample used in this study consists of 20 real estate companies and property as subjects of analysis, selected through the purposive sampling method. This method aims to obtain relevant and accurate data, so that it can reveal a significant relationship between the variables studied.

Research Findings

The results of the analysis showed that simultaneously, the variable of working capital turnover, receivable turnover, inventory turnover, return on equity, debt to equity ratio, and debt to asset ratio had a significant influence on company profitability. However, when analyzed partially, not all variables show the same effect. Receivable turnover variables, inventory turnover, and debt to asset ratio do not have a significant effect on company profitability.

On the other hand, working capital turnover, return on equity, and debt to equity ratio are proven to have a significant influence on profitability.

Analysis and Explanation

Working Capital Turnover

Working capital turnover is a measure of how efficient the company uses its working capital to generate revenue. The higher the working capital turnover, the faster the company can take advantage of its assets to generate income. This shows that the company has good management in managing current assets and short-term obligations, which in turn will increase profitability.

Return on Equity (ROE)

ROE reflects how effective management is to generate profits from each shareholder equity unit. The high ROE level shows that the company succeeded in generating high profits compared to the equity invested by shareholders. This is important because investors tend to look for companies with high ROE as a sign of good financial performance.

Debt to Equity Ratio and Debt to Asset Ratio

The ratio of debt to equity and debt to asset ratios is an important indicator that shows the extent to which the company funds its activities with debt compared to equity. A higher debt ratio can indicate a greater risk; However, if used effectively, debt can also increase profitability through cheaper financing for growth. This study shows that the debt to equity ratio has a significant influence on profitability, shows that the balance between debt and equity is very important for the company's financial success.

Insignificant Variable

Meanwhile, the turnover of receivables and inventory turnover that does not have a significant influence on profitability can be explained that there may be other factors that are more dominant in managing receivables and inventory, which are not measurable in this study. Therefore, it is important for companies to further optimize the management of these two aspects to achieve better profitability.

Conclusion

Overall, this research provides a clear picture of the relationship between financial management and profitability of real estate and property companies in Indonesia. The results of this study can be the basis for company management in making appropriate decisions related to working capital management and the use of debt to improve the company's financial performance. By understanding the influential factors, companies are expected to optimize business strategies and increase their profitability in increasingly competitive markets.

Recommendations

Based on the findings of this study, the following recommendations are made:

Improve Working Capital Management: Companies should focus on improving their working capital management to increase their working capital turnover. This can be achieved by optimizing their accounts receivable and inventory management.
Optimize Debt to Equity Ratio: Companies should aim to maintain a balance between debt and equity to ensure that they are not over-leveraged. This can be achieved by adjusting their debt to equity ratio to a level that is optimal for their business.
Monitor Return on Equity: Companies should monitor their ROE regularly to ensure that they are generating high profits compared to the equity invested by shareholders.
Further Research: Further research is needed to explore the relationship between financial management and profitability in real estate and property companies in Indonesia. This can include examining the impact of other financial variables on profitability.

Limitations of the Study

This study has several limitations that should be noted:

Sample Size: The sample size of 20 real estate companies and property is relatively small, which may limit the generalizability of the findings.
Time Period: The study only examines the period 2007 to 2009, which may not be representative of the current business environment.
Data Quality: The data used in this study is sourced from financial statements published through the Indonesian Capital Market Directory (ICMD), which may not be accurate or reliable.

Future Research Directions

Future research should aim to address the limitations of this study by:

Increasing Sample Size: Future studies should aim to increase the sample size to include more real estate companies and property.
Examining a Longer Time Period: Future studies should aim to examine a longer time period to ensure that the findings are representative of the current business environment.
Using More Accurate Data: Future studies should aim to use more accurate and reliable data to ensure that the findings are valid and reliable.

By addressing these limitations and future research directions, future studies can provide a more comprehensive understanding of the relationship between financial management and profitability in real estate and property companies in Indonesia.

Q: What is the main objective of this study?

A: The main objective of this study is to analyze the effect of working capital turnover, receivable turnover, inventory turnover, return on equity (ROE), debt to equity ratio, and debt to asset ratio on the profitability of real estate and property companies listed on the Indonesia Stock Exchange.

Q: What is the sample size of this study?

A: The sample size of this study is 20 real estate companies and property.

Q: What is the time period of this study?

A: The time period of this study is 2007 to 2009.

Q: What is the research methodology used in this study?

A: The research methodology used in this study is a quantitative approach with multiple regression analysis techniques.

Q: What are the findings of this study?

A: The findings of this study show that working capital turnover, return on equity, and debt to equity ratio have a significant influence on profitability, while receivable turnover, inventory turnover, and debt to asset ratio do not have a significant effect on profitability.

Q: What are the implications of this study?

A: The implications of this study are that real estate and property companies should focus on improving their working capital management, optimizing their debt to equity ratio, and monitoring their return on equity to increase their profitability.

Q: What are the limitations of this study?

A: The limitations of this study are the small sample size, the limited time period, and the potential for inaccurate or unreliable data.

Q: What are the future research directions?

A: The future research directions are to increase the sample size, examine a longer time period, and use more accurate and reliable data to provide a more comprehensive understanding of the relationship between financial management and profitability in real estate and property companies in Indonesia.

Q: What are the recommendations of this study?

A: The recommendations of this study are to improve working capital management, optimize debt to equity ratio, monitor return on equity, and further research is needed to explore the relationship between financial management and profitability in real estate and property companies in Indonesia.

Q: What are the benefits of this study?

A: The benefits of this study are that it provides a clear picture of the relationship between financial management and profitability in real estate and property companies in Indonesia, and it can be used as a basis for company management in making appropriate decisions related to working capital management and the use of debt to improve the company's financial performance.

Q: What are the potential applications of this study?

A: The potential applications of this study are that it can be used by real estate and property companies to improve their financial management and increase their profitability, and it can also be used by investors to make informed decisions about investing in real estate and property companies.

Q: What are the potential limitations of the applications of this study?

A: The potential limitations of the applications of this study are that it may not be generalizable to other industries or companies, and it may not be applicable in all business environments.

Q: What are the potential future research directions?

A: The potential future research directions are to explore the relationship between financial management and profitability in other industries or companies, to examine the impact of other financial variables on profitability, and to use more advanced statistical techniques to analyze the data.

Q: What are the potential implications of the findings of this study?

A: The potential implications of the findings of this study are that real estate and property companies should focus on improving their working capital management, optimizing their debt to equity ratio, and monitoring their return on equity to increase their profitability, and that investors should consider these factors when making investment decisions.

Q: What are the potential benefits of the findings of this study?

A: The potential benefits of the findings of this study are that it can provide a clear picture of the relationship between financial management and profitability in real estate and property companies in Indonesia, and it can be used as a basis for company management in making appropriate decisions related to working capital management and the use of debt to improve the company's financial performance.