THE IMPACT OF SOLVENCY AND WORKING CAPITAL ON PROFITABILITY
Abstract
Every business requires working capital for its survival. A solvent company has assets that exceed its liabilities sufficiently to reinvest in its growth. Solvency refers to company's ability to fulfil its obligations. Assessment of a company's ability to pay it obligations such as to make interest and principal payments generally include analysis of the components of its financial structure. The degree of solvency in a business is measured by the relationship between the assets, liabilities and equity of a business at a given point in time. The company should determine the appropriate solvency levels in increasing profitability. The purpose of this research is to know whether solvency and working capital have an impact on profitability at CV Masindo Electric Medan. The research design used in this research is a descriptive research design with conducting financial statement analysis. Research methods used are descriptive statistic analysis with financial ratio analysis, coefficient correlation, coefficient of determination, linear regression analysis, t test and F test.This research concludes that solvency and working capital have impact on profitability at CV Masindo Electric Medan. Based on T-test, the value of Tcount is higher than Ttable. Therefore, the solvency and working capital have a significant impact on profitability at CV Masindo Electric Medan partially. Based on the F test, the value of Fcount is higher than Ftable.
Therefore, the solvency and working capital have a significant impact on profitability at CV Masindo Electric Medan simultaneously. The profitability can be explained by working capital and solvency in 99.8%, while the remaining in 0.2% is explained by other factors. Based on the working capital analysis, there is decrease in working capital in the year 2012-2016. It shows that the company doesn't conduct working capital management appropriately. Based on solvency analysis, there is increasing insolvency in the year 2012-2016. The company has limitations from internal fund from profit and capital from the owner. Therefore, the company finds a way to conducting business with external funds such as from account payable and bank loan. Based on profitability analysis, it can be known that there is decreasing of profitability in year 2012-2016. The company cannot increase the sales price to a high level because there is low-profit margin.
Keywords: Solvency, Working Capital and ProfitabilityReferences
Angahar, P. A. (2014). Impact of Working Capital on the Profitability of The Nigerian Cement Industry. London : European Journal of Accounting Auditing and Finance Research. Vol. 2. No. 7. Pg. 17-30.
Azis, A. (2017). The Relationship Between Solvency Ratios and Profitability Ratios : Analytical Study in Food Industrial Companies listed in Amman Bursa. London : International Journal of Economics and Financial Issues. Vol. 7. No. 2. Pg. 86-93.
Babu, R. (2015). Financial Management. New Delhi : Concept Publishing Company PVT. Ltd.
Block, S. (2015). Foundations of Financial Management. New York : McGraw Hill Irwin.
Bose, C. (2015). Principles of Management and Administration. New Delhi : PHI Learning Private Limited.
Brealey. (2015). Fundamentals of Corporate Finance. New York : McGraw Hill.
Brink, H. (2015). Fundamentals of Research Methodology for Health Care Professionals. Cape Town : Juta & Co. Ltd.
Chandra, P. (2015). Financial Management. New Delhi : Tata McGraw Hill Education.
Dyson, J. R. (2015). Accounting For Non Accounting Students. New York : Prentice Hall.
Foerster, S. (2015). Financial Management Concepts and Applications. Boston : Pearson Education.
Goel, S. (2015). Financial Statement Analysis. London : Routledge Taylor & Francis Group.
Gopal, R. (2015). Financial Management. New Delhi : New Age International Publishers.
Horne, J. C. (2015). Fundamentals of Financial Management. New Jersey : Pearson Education.
Juliana, Chauhan, R., & Karwa, Y. C. (2020). A research study on cultural impact on consumer buying behavior of financial assets. International Journal of Advanced Science and Technology, 29(6), 1432–1439.
Kotzab, H. (2012). Research Methodologies in Supply Chain Management. Berlin : Physica – Verlag.
Libby, R. (2013). Financial Accounting. New York : Mc Graw Hill Irwin.
Mathur, S. B. (2015). Financial Management Theory and Practice. New Delhi : Trinity Press.
Meleis, A. (2012). Theoretical Nursing Development and Progress. Philadelphia : Lippincott Williams & Wilkins.
Murugesan, G. (2015). Principles of Management. New Delhi : University Science Press.
Narayan, S., & Sriananthakumar, S. (2020). Are the Current Account Imbalances on a Sustainable Path ?
Palepu, K. (2013). Business Analysis and Valuation. Ohio : South Western Cencage Learning.
Paramasivan, C. (2015). Financial Management. New Delhi : New Age Internatinal (P) Limited.
Petty, M. (2015). Financial Management. Australia : Pearson Australia.
Plunkett, W. (2015). Management. Ohio : South Western Cencage Learning.
Purwanto, A., Purba,J.T, Bernarto,I., Sijabat,R.(2021). The Role of Transformational Leadership, Organizational Citizenship Behaviour, Innovative Work Behaviour, Quality Work Life, Digital Transformation and Leader Member Exchange on Universities Performance. Linguistica Antverpiensia.2021(2).2908-2932
Purwanto, A., Purba,J.T, Bernarto,I., Sijabat,R.( 2021).Pengaruh Servant, Digital dan Green leadership Terhadap Kinerja Industri Manufaktur Melalui Mediasi Komitmen Organisasi, Jurnal Riset Inspirasi Manajemen dan Kewirausahaan Volume 5 No. 1 Edisi Maret 2021 Hal 1-13, DOI : https://doi.org/10.35130/jrimk
Purwanto, A., Purba,J.T, Bernarto,I., Sijabat,R.( (2021).Peran Organizational Citizenship Behavior (OCB), Transformational and Digital Leadership Terhadap Kinerja Melalui Mediasi Komitmen Organisasi Pada Family Business. Jenius. 4(3). 256-262.http://dx.doi.org/10.32493/JJSDM.v4i3.10454
Purwanto, A., Purba,J.T, Bernarto,I., Sijabat,R (2021). EFFECT OF TRANSFORMATIONAL LEADERSHIP,JOB SATISFACTION, AND ORGANIZATIONAL COMMITMENTS ON ORGANIZATIONAL CITIZENSHIP BEHAVIOR. Inovbiz: Jurnal Inovasi Bisnis 9 (2021) 61-69
Purwanto, A., J. T. Purba, I. Bernarto, and R. Sijabat. 2021. Effect of Management Innovation, Transformational leadership and knowledge sharing on Market Performance of Indonesian Consumer Goods Company. Jurnal Aplikasi Manajemen, 19(2), 424–434. Malang: Universitas Brawijaya. http://dx.doi.org/10.21776/ub.jam.2021.019.02.18.
Rahman, M. (2015). Measuring The Relationship Between Working Capital Management and Profitability : Empirical Evidence From Bangladesh. London : Journal of Accounting Finance. Vol. 15. Pg. 8. No. 120-132.
Rao, P. M. (2013). Financial Statement Analysis and Reporting. New Delhi : PHI Learning Private Limited.
Sagner, J. (2015). Working Capital Management. New Jersey : John Wiley & Sons, Inc.
Singh, K. (2015). Determining Working Capital Solvency Level and Its Effect on Profitability in Selected Indian Manufacturing Firms. London : International Journal of Research in Commerce. Vol. 2. No. 1. Pg. 1-15.
] Stice, E. (2015). Intermediate Accounting. Ohio : South Western Cencage Learning.
Tesone, D. (2015). Principles of Management for The Hospitality Industry. London : Butterworth Heinemann.
Vemimmen, P. (2015). Corporate Finance : Theory and Practice. New Jersey : John Wiley & Sons Inc.
Waran, J. (2017). Impact of Solvency and Working Capital on Profitability of Select Multinational Pharmaceutical Companies in India. London : International Journal of Commerce and Management Research. Vol. 3. No.6. Pg. 11-16.
Warren, C. S. (2015). Survey of Accounting. Ohio : South Western Cencage Learning.
Wild, J. (2015). Fundamental Accounting Principles. New York: Mc-Graw Hill International Edition.
