Analyzing the Financial Efficiency and Stability of FMCG Companies in Indonesia: A Study of Inventory Turnover and Debt-to-Equity Ratios
Journal Title: International Journal of Current Science Research and Review - Year 2023, Vol 6, Issue 12
Abstract
Fast Moving Consumer Goods (FMCG) companies tend to have rapid shelf turnover. It is identical with financial measurement on its inventory turnover rate. This is because FMCG companies typically have their inventory stored in warehouses in order to fulfill their customers’ fast demands of their products. Hence; when a company has a low inventory turnover; it means that their products are not selling as fast as they should; affecting their inventory management efficiency as well as their expenses. Where a company has successfully balanced their inventory management, a manageable debt-to-equity ratio is also good to avoid excessive financial risk for the company. Company’s solvability depends on how liquid is the company and how well they could pay off its debt; this also relates to how they finance their company which is where the calculation of D/E ratio is useful. This determines whether the company uses equity to finance their operations or instead rely on debt to finance their operational expenses. The result of analysis have shown that companies with high inventory turnover ratio like PT Buyung Poetra Sembada Tbk, PT Tigaraksa Satria Tbk, and PT Akasha Wira International Tbk with a positive net income and high inventory turnover rate tend to have stable and low numbers of D/E ratio while 64.37% of companies in Indonesia still have ITR that is way below nationwide average. A high inventory turnover translates to faster cash flow, allowing these companies to repay debt more quickly and maintain a low D/E ratio. This research will be designed qualitatively by using the quantitative numbers given from companies publicly posted financial statements and annual reports with complementary knowledge from secondary data derived from the company’s website and other resources including reputable journals, mass media, and online articles. Research will then begin with a preliminary analysis to obtain listed FMCG companies in Indonesia, then curate them based on their current inventory and D/E Ratio. Comparison of the companies’ financial performance is done by using their data from the year end 2022; the data obtained will then be calculated to produce numbers of inventory turnover ratio, D/E ratio, and ROA ratio to be able to draw the conclusion from the numbers produced. Three companies with the highest and lowest number of inventory turnover ratio and D/E ratio are then picked along with analyzing their financial statements to determine the companies’ net income. Additional list of some of the biggest FMCG companies in Indonesia is also included in order to be able to see the overall strategy of performance of a company who had been long in the industry. Through the analysis, the correlation of inventory turnover and D/E ratio within the company indeed impact financial performance stability of the company in a way that a lower D/E which means that they will have less financial risk and more stability. Companies can be benefitted to be able to stay stable in the market facing the volatile economic conditions and industry downturns; lower D/E can also mean more flexibility for future investment. Lenders will more likely to lend more money when indeed to the companies who have lower D/E ratio compared to other companies with higher D/E. A high ITR and low DER can make a company more agile, reduce the burden of interest payments, which eventually will make it easier for the company to invest in profitable opportunities, and lead to higher ROA.
Authors and Affiliations
Fediola Haura Nasywa, Erman Sumirat, Dzikri Firmansyah Hakam,
Keywords
Related Articles
- EP ID EP725697
- DOI 10.47191/ijcsrr/V6-i12-96
- Views 22
- Downloads 0
Analysis of the Probability of Financial Distress as a Moderating Variable that Influences Stock Returns in Coal Companies (2018-2022)
This research was conducted to examine and analyze the influence of operating activity cash flow, investing activity cash flow, financing activity cash flow, liquidity, and total asset turnover as independent variables o...
Predictive Modeling in Remote Sensing Using Machine Learning Algorithms
Predictive modeling in remote sensing using machine learning (ML) algorithms has emerged as a powerful approach for addressing various environmental and climatic challenges. This paper explores the integration of advance...
The Effect of Service Quality and 7P Marketing Mix on Repurchase Intention with Customer Satisfaction as Intervening Variable (Study at Perihal Kopi)
This study investigates the relationship between service quality and 7P marketing mix as key factors in achieving customer satisfaction and repurchase intention. The focus is to measure the extent to which customer satis...
The Influence of Expertise, Time of Assignment and Audit Stages on the Audit Quality of Internal Government Supervisory Apparatus (APIP) at Inspektorat throughout Aceh
The purpose of this research is to determine the influence of APIP’s expertise, APIP’s time of assignment and audit stages, namely the planning stage, implementation or supervision stage, and reporting stage on audit qua...
Dimensions of Risk in the Effect of Customers’ Awareness and Knowledge on the Readiness to adopt Neobanks
The majority of conventional banks offer digital services during pandemics, while the government promotes cashless transactions in daily life. In India, the Neobanking industry is developing at an increasing rate. It’s a...