The Effect of Capital Structure and Profitability on Company Value with Company Size as a Moderating Variable in Manufacturing Companies Listed on the Indonesia Stock Exchange
Introduction
The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast array of companies listed across various sectors. Among these, manufacturing companies play a crucial role in driving economic growth and development. However, the performance of these companies is often influenced by various factors, including capital structure and profitability. This study aims to examine the effect of capital structure and profitability on company value, with company size as a moderating variable, in manufacturing companies listed on the IDX during the 2012-2014 period.
Capital Structure and Profitability
Capital structure refers to the mix of debt and equity used by a company to finance its operations. A high debt ratio can increase financial risk, while a high equity ratio can reduce financial risk. Profitability, on the other hand, refers to the efficiency of a company in using its assets to generate profits. In this study, capital structure is measured through the long-term debt ratio to equity, while profitability is measured through the rotation of fixed assets.
Capital Structure: A Double-Edged Sword
A high debt ratio can be beneficial for companies in the short term, as it allows them to access cheap capital and invest in growth opportunities. However, it can also increase financial risk, as companies may struggle to service their debt obligations. In contrast, a high equity ratio can reduce financial risk, as companies have more flexibility to adjust their capital structure in response to changing market conditions.
Profitability: The Key to Success
Profitability is a critical factor in determining a company's value. Companies with high profitability tend to have higher market values, as investors are willing to pay a premium for companies that can generate strong returns on investment. In this study, profitability is measured through the rotation of fixed assets, which reflects the efficiency of a company in using its assets to generate profits.
Company Value
Company value is a critical concept in finance, as it reflects the market's perception of a company's worth. In this study, company value is measured through the price-to-book ratio (P/B ratio), which shows how much a company's market value is compared to its book value. The P/B ratio is a widely used metric in finance, as it provides a snapshot of a company's value relative to its assets.
The Role of Company Size
Company size can play a significant role in determining the relationship between capital structure, profitability, and company value. Large companies tend to have easier access to the capital market and lower interest rates, which can affect their financing and profitability strategies. In this study, company size is measured through total assets, which reflects the scale of a company's operations.
Research Results
The results of multiple linear regression analysis showed that simultaneously, both capital structure and profitability have a significant influence on company value. However, partially, only the ratio of long-term debt to equity has a significant negative influence on the company's value. The rotation of fixed assets does not show a significant effect on company value.
The Moderating Effect of Operating Cash Flow
The moderation test shows that the operating cash flow is able to moderate the relationship between the long-term debt ratio to equity and the company's partial value. That is, the negative effect of the long-term debt ratio on equity to the company's value is greater in the company with a low operating cash flow. However, the operating cash flow is not able to moderate the relationship between the rotation of fixed assets and the value of the company.
Implications and Recommendations
The results of this study indicate that the capital structure, especially the long-term debt ratio to equity, has a significant influence on the company's value. Companies with a high debt ratio tend to have a lower company value. It is essential for manufacturing companies to maintain a balance between funding through debt and equity to maximize the value of the company.
In addition, the operating cash flow is proven to moderate the relationship between long-term debt ratios to equity and company value. Companies with low operating cash flow are more vulnerable to financial risks due to high debt ratios. This shows the importance of maintaining cash flow stability to support financing strategies and increase company value.
Conclusion
This study confirms the importance of capital structure and profitability in creating company value. The ratio of long-term debt to high equity can negatively affect the company's value, and the operating cash flow plays an important role in moderating the relationship. Manufacturing companies must pay attention to the capital structure, profitability, and operating cash flow to achieve growth and create sustainable value.
Limitations and Future Research Directions
This study has several limitations, such as limited data in the 2012-2014 period and the use of limited moderation variables. Further research can expand data coverage, use a longer period of time, and examine other moderation variables such as leverage and sales growth levels.
References
[List of references cited in the study]
Appendices
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Note: The content of the article is based on the provided markdown text. The article has been rewritten to make it more readable and SEO-friendly. The title has been changed to make it more descriptive and attention-grabbing. The article has been divided into sections to make it easier to read and understand. The language has been made more formal and academic, and the tone has been made more objective and neutral.Q&A: The Effect of Capital Structure and Profitability on Company Value with Company Size as a Moderating Variable in Manufacturing Companies Listed on the Indonesia Stock Exchange
Frequently Asked Questions
Q: What is the main objective of this study?
A: The main objective of this study is to examine the effect of capital structure and profitability on company value, with company size as a moderating variable, in manufacturing companies listed on the Indonesia Stock Exchange during the 2012-2014 period.
Q: What is capital structure, and how is it measured in this study?
A: Capital structure refers to the mix of debt and equity used by a company to finance its operations. In this study, capital structure is measured through the long-term debt ratio to equity.
Q: What is profitability, and how is it measured in this study?
A: Profitability refers to the efficiency of a company in using its assets to generate profits. In this study, profitability is measured through the rotation of fixed assets.
Q: What is company value, and how is it measured in this study?
A: Company value is a critical concept in finance, as it reflects the market's perception of a company's worth. In this study, company value is measured through the price-to-book ratio (P/B ratio).
Q: What is the role of company size in determining the relationship between capital structure, profitability, and company value?
A: Company size can play a significant role in determining the relationship between capital structure, profitability, and company value. Large companies tend to have easier access to the capital market and lower interest rates, which can affect their financing and profitability strategies.
Q: What are the results of the multiple linear regression analysis?
A: The results of the multiple linear regression analysis showed that simultaneously, both capital structure and profitability have a significant influence on company value. However, partially, only the ratio of long-term debt to equity has a significant negative influence on the company's value. The rotation of fixed assets does not show a significant effect on company value.
Q: What is the moderating effect of operating cash flow?
A: The moderation test shows that the operating cash flow is able to moderate the relationship between the long-term debt ratio to equity and the company's partial value. That is, the negative effect of the long-term debt ratio on equity to the company's value is greater in the company with a low operating cash flow.
Q: What are the implications and recommendations of this study?
A: The results of this study indicate that the capital structure, especially the long-term debt ratio to equity, has a significant influence on the company's value. Companies with a high debt ratio tend to have a lower company value. It is essential for manufacturing companies to maintain a balance between funding through debt and equity to maximize the value of the company.
Q: What are the limitations of this study?
A: This study has several limitations, such as limited data in the 2012-2014 period and the use of limited moderation variables. Further research can expand data coverage, use a longer period of time, and examine other moderation variables such as leverage and sales growth levels.
Q: What are the future research directions?
A: Future research can expand data coverage, use a longer period of time, and examine other moderation variables such as leverage and sales growth levels. Additionally, researchers can investigate the effect of capital structure and profitability on company value in other industries or countries.
Additional Questions and Answers
Q: What is the significance of this study?
A: This study is significant because it provides insights into the relationship between capital structure, profitability, and company value in manufacturing companies listed on the Indonesia Stock Exchange. The findings of this study can help investors, policymakers, and company managers make informed decisions about capital structure and profitability.
Q: How can companies use the findings of this study?
A: Companies can use the findings of this study to adjust their capital structure and profitability strategies to maximize their value. For example, companies with high debt ratios may need to reduce their debt levels or increase their equity levels to improve their financial health.
Q: What are the implications of this study for policymakers?
A: The findings of this study have implications for policymakers who are responsible for regulating the financial sector. Policymakers can use the findings of this study to develop policies that promote healthy capital structures and profitability in manufacturing companies.
Conclusion
This Q&A article provides answers to frequently asked questions about the effect of capital structure and profitability on company value with company size as a moderating variable in manufacturing companies listed on the Indonesia Stock Exchange. The article provides insights into the relationship between capital structure, profitability, and company value and highlights the significance of this study for investors, policymakers, and company managers.