Financial Statement Analysis Of Leverage And How It Informs About Profitability And Price-To-Book Ratio

Abstract

Apriansyah, Aries. (2005). Financial Statement Analysis of Leverage and How It Informs About Profitability and Price-to-book Ratio. Yogyakarta. Faculty of Economics. Universitas Islam Indonesia. This empirical study is based on financial statement data of the manufacturing companies listed on Jakarta Stock Exchange in the period of 1999-2003. This study uses leverage variables that arise from operating and financing activities as independent variable proxy and shareholders profitability represented by Return on Common Equity (ROCE), Return on Net Assets (RNOA) and Return on Operating Assets (ROOA) as the dependent variables. This study uses Pearson correlation analysis and multiple linear regression models. An empirical analysis shows that financing leverage correlate negatively on shareholders profitability, while operating liability leverage correlate positively on operating profitability. Another analysis results that total leverage statistically significant affect on shareholders profitability. On the other hand, the analysis also provides evidence that operating liability leverage does not negatively affect on shareholders profitability. Accordingly, financial statement analysis that distinguishes the two types of liabilities aids in evaluating price-to-book ratio appropriately.