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Creative Commons Attribution-NonCommercial 4.0 International License

Article

Open Access

Basic Industry and Chemicals Subsector Cash Flow Ratios and Profitability

Author(s)

Fanny Soewignyo, Tonny Irianto Soewignyo

Full-Text PDF Download XML 1053 Views

DOI:10.17265/1548-6591/2017.06.003

Affiliation(s)

Universitas Klabat, Airmadidi, Manado, Sulawesi Utara, Indonesia

ABSTRACT

This paper aims to predict profitability using two types of operating cash flow ratio. In a cross sectional study, the authors gathered data from manufacturing companies listed under basic industry and chemicals subsector on Indonesia Stock Exchange in 2013. To be included in the sample, each company must have available all required data for the test period and outliers are determined and removed. Accordingly, from the total population of 60 companies, the final sample contains 40 companies. The authors find that first, greater current cash debt coverage ratio worsens return on assets. Secondly, the greater the cash debt coverage ratio, the higher the return on assets and return on equity. Further, the authors’ findings suggest that cash debt coverage ratio has more predictive ability relative to current cash debt coverage ratio on profitability. Surprisingly, it was found that both current cash debt coverage ratio and cash debt coverage ratio have no predictive ability on earnings per share. Overall, the evidence highlights the influence of financial liquidity and financial flexibility on profitability as measured by return on assets and return on equity. This study contributes to current understanding of the usefulness of operating cash flow ratios in predicting profitability.

KEYWORDS

cash debt coverage ratio, current cash debt coverage ratio, financial flexibility, financial liquidity, profitability

Cite this paper

Journal of US-China Public Administration, June 2017, Vol. 14, No. 6, 321-329

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