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Dyah Nirmala Arum Janie; Rosyati. The Financial Ratios Impact on Earnings Growth of The Consumer Goods Companies Listed on IDX in 2015-2020

Page : 17 Research.

The Financial Ratios Impact on Earnings Growth of The Consumer Goods Companies Listed on IDX in 2015-2020

Dyah Nirmala Arum Janie^1*), Rosyati Rosyati²⁾

Universitas Muhammadiyah Semarang¹, Universitas Semarang² [email protected]¹, [email protected]²

corresponding author^*)

Received: February 3 ,2022; Accepted: June 3, 2022 Published: June 30, 2022

To cite this article: Janie, DNA; Rosyati, R. (2022). The Financial Ratios Impact on Earnings Growth of The Consumer Goods Companies Listed on IDX in 2015-2020. The Accounting Journal of BINANIAGA. 7 (1) 17 - 30. doi: 10.33062/ajb.v7i1.490

Abstracts. This study examines the effect of financial ratios on the earnings growth of manufacturing companies in the consumer goods industry sector. The analysis was carried out using multiple linear regression using the SPSS 23 program. The company sample data was 102 out of 17 companies in the consumer goods industrial manufacturing sector listed on the Indonesia Stock Exchange (IDX) during the 2015-2020 period. The results of the research that the Current Ratio has a negative and insignificant effect on earnings growth, Net Profit Margin has a positive and significant effect on earnings growth, Total Assets Turnover has a negative and insignificant effect on earnings growth. This study uses earnings growth as the dependent variable, with Current Ratio, Net Profit Margin, Total Assets Turnover as independent variables. It is hoped that future research will test by adding other variables that affect earnings growth.

Keywords: Earnings Growth, Current Ratio, Net Profit Margin, Total Assets Turnover.

INTRODUCTION

Every company has a goal: to get the maximum profit for the business it manages.

Therefore, the management must be able to make the right company operational planning so that every function in the company can play an active role in carrying out their duties so that company goals can be achieved. In addition, management and supervision of business activities also need to be carried out to be monitored in the event of fraud.

(Pawe & Santoso, 2021).

Earnings are the most crucial part of financial statements for various reasons, including profit as a basis for calculating taxes, guidelines in determining investment policies and decision making, and the basis for forecasting long-term future earnings.

Earnings is a tool for measuring the prosperity or success of a company during a specific period. Profit also reflects the performance of management, whether they manage their management or not over a certain period. Every company expects an increase in profits every year, but future earnings are still uncertain (Pawe & Santoso, 2021). The fact is that there are still frequent fluctuations in the profit growth of manufacturing companies in the consumer goods industry sector. The following table shows the profit growth of three companies as representatives of manufacturing companies in the consumer goods industry sector.

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Dyah Nirmala Arum Janie; Rosyati. The Financial Ratios Impact on Earnings Growth of The Consumer Goods Companies Listed on IDX in 2015-2020

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Figure 1: The Consumer Goods Companies’ Earnings Growth (2015-2020)

Based on the picture above, it can be concluded that companies' earnings growth in the consumer goods industry sector on the IDX in the 2015-2020 period. For example, earnings growth at Delta Djakarta Tbk in 2015-2016 increased by 33%; in 2017, it decreased by 23%. In 2018 it increased again by 11%, but in 2019 and 2020, it again experienced a very significant decline of 27% and 55%, respectively. On the other hand, earnings growth at the company Darya Varia Labotaria Tbk in 2016 and 2018 experienced an increase in profit of 9% and 17%, in 2017, 2019, and 2020 decreased by 34%, 13%, and 38%, respectively. On the other hand, earnings growth at the Handjaya Mandala Sampoerna Tbk company in 2016 and 2018 increased by 21% and 8%, in 2017, 2019, and 2020 decreased by 24%, 6%, and 38%, respectively.

It can be concluded that each company does not always experience an increase, but some companies experience a decline or are volatile. Earnings growth is influenced by external conditions, such as inflation rate economic growth, along with the direction of the economic system towards the free market, the greater the external influence on the company's performance. In addition, the company's ability to increase the earnings obtained is also influenced by the analysis of the company's financial ratios. Therefore, the company's earnings growth and the factors influencing it are crucial. Therefore the purpose of this study is to analyze the factors that tend to affect the company's earnings growth and to find out and analyze whether financial ratios can strengthen or weaken the earnings growth of manufacturing companies in the consumer goods industry sector—

listed on the Indonesia Stock Exchange in 2015-2020 (Rice, 2016). So with this phenomenon, researchers are interested in researching profit growth. There is an increase and decrease in earnings influenced by certain factors.

Financial reports are intended to provide decision-makers with information about the company. Although the financial statements are released within a certain period, sometimes, the company does not know the current state (Pawe & Santoso, 2021).

Therefore, financial statement analysis is needed to understand better the content presented in financial statements. In addition, financial statement analysis requires something to compare the numbers in the financial statements, also known as financial ratios. Financial ratios are one type of financial statement analysis that can measure a company's profit growth from one period to another. The results of financial ratio analysis

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Page : 19 can be used by users of financial statements such as managers, investors, or creditors to guide decisions that will affect the company's profit growth (Pawe & Santoso, 2021).

Earnings growth is a ratio that shows the company's ability to increase net profit from the previous year (Pawe & Santoso, 2021). Earnings growth will reflect the company's performance over a certain period and guide companies to increase profits in the future (Aisyah & Widhiastuti, 2021). Profit growth is significant for companies because profit growth can be a benchmark for investors. If the value of profit growth in each period decreases, it will reduce the interest of investors to invest in the company. Many factors influence profit growth, including the current ratio, net profit margin, and total asset turnover. The current ratio can measure the company's ability to meet short-term obligations that mature in the short term using available current assets (Purnama &

Idayati, 2019). Net profit margin (NPM) describes the net profit earned by the company on every sale made (Ravasadewa, 2018). Total asset turnover measures how often the company rotates its total assets to profit. this ratio shows the company's ability to optimize its total assets to earn a profit (Rusdianto & Waluyo, 2020)

Research conducted by Pawe & Santoso (2021 states that the current ratio has a negative and significant effect on profit growth. Research conducted by (Rusdianto &

Waluyo, 2020), (Purnama & Idayati, 2019), and (Prastya & Agustin, 2018) states that the current ratio has a positive and insignificant effect on profit growth. Research conducted by Pawe & Santoso (2021) and Purnama & Idayati (2019) states that return on assets has a positive and significant effect on profit growth. In research conducted by Pawe &

Santoso (2021) and Prastya & Agustin (2018), it is stated that the growth profit margin has a negative and insignificant effect on profit growth.

Research conducted by Purnama & Idayati (2019), Wahyuni, Tri, Sri Ayem (2017), and Rusdianto & Waluyo (2020) stated that net profit margin had a positive and significant effect on profit growth. Meanwhile, the research by Prastya & Agustin (2018) got different results; namely, the net profit margin had a negative and insignificant effect on profit growth. Furthermore, research conducted by Purnama & Idayati (2019) and Rusdianto & Waluyo (2020) stated that total asset turnover had a negative and insignificant effect on profit growth. In contrast to the results of research of Prastya &

Agustin (2018), which states that total asset turnover has a negative and significant effect on profit growth.

Based on the explanation above, there are differences in the research results regarding the factors that affect profit growth, differing from one researcher to another.

With the inconsistency of the study results, the researchers were interested in re- examining it. Therefore, this study replicates the research conducted by Pawe & Santoso (2021). The difference between this study and previous research is that it uses a sample of manufacturing companies in the consumer goods industry sector, the addition of the research year period to 2015-2020, and independent variables following previous research suggestions.

LITERATURE REVIEW

The current ratio is a liquidity ratio used to measure the company's ability to pay short-term obligations or debts that are due immediately when billed in their entirety (Kasmir, 2018). A low current ratio indicates a liquidity problem. On the other hand, a high current ratio guarantees short-term creditors because the company can pay off its short- term financial obligations.

In research by Pawe & Santoso (2021), the current ratio has a negative and significant effect on earnings growth, while in research Purnama & Idayati (2019), Rusdianto & Waluyo (2020), and Prastya & Agustin (2018) positive and not significant.

Therefore, based on the theory, increasing earnings signals will positively signal investors. It will increase their interest in investing in the company and increase company

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profits. Therefore, based on the description above, the first hypothesis in this study is as follows:

H0_1: Current ratio does not affect earnings growth

Net profit margin shows how big the percentage of net income earned by each sale. The bigger this ratio, the better because the company's ability to earn profits is relati

vely high (Harahap, 2015). High Net Profit Margin indicates that the company can increase operating gain in that period. With a significant net profit, the company's opportunity to increase its business capital is even more excellent without going through new debts so that the income earned increases.

In research conducted by Purnama & Idayati (2019), Wahyuni, Tri, Sri Ayem (2017), Rusdianto & Waluyo (2020) stated that net profit margin had a significant positive effect on earnings growth. While in research conducted by Prastya & Agustin (2018) declared that net profit margin had a negative and insignificant effect on earnings growth.

Based on the signal theory, a high net profit margin indicates a more significant net profit.

Therefore, it will give a positive signal to investors to invest in the company to expect a high return from their capital, thereby increasing earnings growth. Based on the description above, the third hypothesis in this study is as follows:

H0_2: Net Profit Margin does not affect earnings growth.

The activity ratio is the ratio used to measure the effectiveness of the company using its assets, including measuring the company's level of efficiency in utilizing existing resources. This ratio is also used to assess the company's ability to carry out daily operational activities (Purnama & Idayati, 2019). In this study, the activity ratio used is total asset turnover. Total asset turnover is used to measure how often the company uses its total assets to generate earnings. This ratio shows the company's ability to optimize its assets to earn earnings (Rusdianto & Waluyo, 2020).

Research conducted by Purnama & Idayati (2019) and Rusdianto & Waluyo (2020) argue that total asset turnover has a negative and insignificant effect on earnings growth. In contrast to research conducted by Prastya & Agustin (2018) which states that total asset turnover has a negative and significant effect on earnings growth. Based on the signal theory, a high total asset turnover will positively impact the company because it indirectly signals investors to be interested in investing in the company.

H0_3: Total Asset Turnover does not affect earnings growth

This research is the result of replication of research conducted by Pawe &

Santoso (2021) on the Effect of Financial Ratios on Profit Growth in Agricultural Sector Companies Listed on the Indonesia Stock Exchange in 2015-2019. However, this study has a difference, namely the difference in results from previous studies. This study also uses manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange with a research period of six years (2015-2020) and variables that are suggestions from previous research (Pawe & Santoso, 2021). Based on the description above, the framework of this research is as follows.

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Page : 21 Figure 2: Research Framework

RESEARCH METHOD Earnings Growth

Earnings growth is the difference in net incomes for a particular year deducted by net incomes from the previous year and then divided by the previous year (Harahap, 2015). Earnings are an important figure in financial statements for various reasons, including profit as the basis for calculating taxes, guidelines for determining investment policies and decision making, the basis for forecasting profits and future economic events, the basis for calculation and evaluation, efficiency in company management, as well as being the basis for research on company performance (Harahap, 2015). Growth is the increase in profits obtained by the company from the previous year. Earnings growth can be measured on a ratio scale by subtracting the current period's income from the previous year's profit and dividing it by its income. It can be formulated as follows:

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Where:

Y : Earnings Growth Yt : Current Earnings Yt-1 : Previous Earnings Current Ratio

The current ratio (CR) compares current assets and current liabilities. A low current ratio indicates a liquidity problem (Kasmir, 2018). On the other hand, a high current ratio indicates a good guarantee for short-term creditors in the sense that at any time, the company can pay off its short-term financial obligations. The formula for finding the current ratio is as follows:

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Net Profit Margin

Net profit margin (NPM) describes the net income earned by the company on every sale made (Darsono & Ashari, 2006). Net profit margin (NPM) can assess the performance of an entity to generate profits; if an entity can generate profits and increase it, the company can maintain its sustainability of the company. It means that the greater

Current Ratio

Nett Profit Margin

Total Assets Turnover

Earnings Growth

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the net profit margin ratio, the better the company's ability to generate profits through its operational activities is also getting better. It can be formulated as follows:

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Total Asset Turnover

Total asset turnover is the ratio used to measure the effectiveness of the total assets owned by the company in generating sales or, in other words, to measure the number of sales generated by total assets (Purnama & Idayati, 2019). The effect of total asset turnover on profit growth is that the higher the total asset turnover ratio, the higher the company's ability to earn profits. A high total asset turnover indicates that the company can optimize its total assets to profit. Total asset turnover can be formulated as follows:

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The research object selected is the earnings growth of manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange (IDX) for 2015 to 2020. The sample unit in this study is the company's financial statements that have been audited and published by manufacturing companies in the consumer goods industry on the Indonesian Stock Exchange (IDX) for the 2015-2020 period. This study uses multiple linear analyses. However, before that, it must be preceded by the classical assumption tests of normality, heteroscedasticity, autocorrelation, and multicollinearity. In addition, this study uses the equations of multiple linear regression analysis, namely:

(5) Where:

Y = Earnings Growth a = Constant

b1 = Current Ratio regression coefficient b2 = Net Profit Margin regression coefficient b3 = Total Assets Turnover regression coefficient X1 = Current Ratio

X2 = Net Profit Margin X3 = Total Assets Turnover E = error

This research uses partial and simultaneous testing and analysis of the coefficient of determination (R²) to test the proposed hypothesis (Ghozali, 2018). Hypothesis testing determines whether the current ratio, net profit margin, and total assets turnover affect earnings growth.

RESULTS AND DISCUSSION Descriptive Statistics

This study was made to analyze the effect of the current ratio, net profit margin, and total assets turnover on profit growth. The research object used in this study is a manufacturing company listed on the Indonesia Stock Exchange (IDX) for the 2015-2020 period. The method used in determining the sample uses the purposive sampling method based on the criteria that have been determined in the table below:

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Page : 23 Table 1

Sample Selection Criteria

No. Criteria Total

1. Manufacturing companies in the consumer goods industry sector were listed on the Indonesia

Stock Exchange during 2015-2020. 31

2. Manufacturing companies in the consumer goods industry sector suffer losses. (14)

Sample companies used 17

Number of years during period 2015-2020 6

Data 102

Based on the table above, 17 companies in the consumer goods industry sector are listed on the Indonesia Stock Exchange, which meets the criteria for this study. Then the amount of data obtained and processed is (n = 17x6) 102 data. Therefore, the table above shows descriptive research variables with 102 data in this study consisting of 17 (seventeen) companies throughout 6 (six) years. However, after being deducted by outliers, it became 93 data, with the following descriptive statistics.

Table 2 Descriptive Statistics

N Minimum Maximum Mean Std. Deviation PLABA 93 -.97030 7.04082 .1546173 .80627018 CR 93 .58422 92.76535 3.7906982 9.50361533 NPM 93 .00045 1.90099 .1404608 .20369113 TATO 93 .45025 2.39188 1.2230751 .47684053 Valid N (listwise) 93

The data is taken from each company's financial statements in the annual period, namely 2015-2020.

1. Earnings growth is a dependent variable, has the lowest value (minimum) of - 0.97030, the highest value (maximum) 7.04082, the average value (mean) is 0.1546173 with a standard deviation of 0.80627018, which indicates a very high variation in the data. The company that obtained the lowest profit growth from these data was PT. Kimia Farma (Persero), Tbk. While the highest profit growth value is the company PT. Merck Indonesia, Tbk.

2. The current ratio (CR) is variable independent with sample data (n) 93, has the lowest value (minimum) 0.58422, the highest value (maximum) 92.76535, the average value (mean) 3.7906982 with a standard deviation of 9.50361533. The company with the lowest current ratio value is PT from the data above. Multi Bintang Indonesia, Tbk. While the highest current ratio value was PT. Sido Muncul Herbal &

Pharmaceutical Industry, Tbk.

3. Net profit margin is variable independent with total data (n) 93 having the lowest value (minimum) 0.00045, the highest value (maximum) 1.90099, the average value (mean) o.1404608 with a standard deviation of 0.20369113. From these data, it can be seen that the company that has the lowest score is PT. Sekar Bumi, Tbk and the one who got the highest score was PT. Merck Indonesia, Tbk.

4. Total Assets Turnover is variable independent with total data (n) 93 having the lowest value (minimum) 0.45025, the highest value (maximum) 2.39188 and the average value (mean) 1.2230751 with a standard deviation of 0.47684053. From these data, the company that got the lowest score was PT. Indofood CBP Sukses Makmur, Tbk and the one who got the highest score was PT. Unilever Indonesia, Tbk.

Normality Test

The normality test tests whether the regression model of the independent and dependent variables is normally distributed. A suitable regression method is to have a normal residual data distribution or close to normal (Ghozali, 2018). This study tested normality using the non-parametric statistical test One Kolmogorov Smirnov. Therefore, one Kolmogorov Smirnov statistical test can be used to test the normality of the data.

Data are normally distributed if the significance value is Understandardized Residual >

0.05 or 5%.

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Table 3

One-Sample Kolmogorov-Smirnov Test

Unstandardized Residual

N 93

Normal Parameters^a.b Mean .0000000

Std. Deviation .40258223

Most Extreme Differences

Absolute .066

Positive .055

Negative -.066

Test Statistic .066

Asymp. Sig. (2-tailed) .200^c.d

Monte Carlo Sig. (2-tailed)

Sig. .792^e

99% Confidence Interval Lower Bound .782

Upper Bound .803

a. Test distribution is Normal.

b. Calculated from data.

c. Lilliefors Significance Correction.

d. This is a lower bound of the true significance.

e. Based on 10000 sampled tables with starting seed 926214481.

Based on the test results above, the Kolmogorov-Smirnov statistical test (K-S) value is 0.66 with a significance of 0.782. The value is above 0.05 or 5%. Therefore, it can be concluded that the residual data are normally distributed.

Multicollinearity Test

The multicollinearity test was used to determine whether the regression model found a correlation between the independent variables. If the tolerance value is > 0.10 and VIF < 10, there is no multicollinearity and vice versa. The following are the results of the multicollinearity test:

Table 4 Collinearity Statistics

Model

Collinearity Statistics Tolerance VIF

CR .977 1.023

NPM .966 1.035 TATO .946 1.057

Based on the table above, the results of the calculation of the tolerance value data show that there is no value smaller than 0.10, and the results of the calculation of the Variance Inflation Factor (VIF) value also show that there is no independent variable that has a value of more than 10. Therefore, it can be concluded that the regression model does not occur—multicollinearity between independent variables.

Autocorrelation Test

The autocorrelation test tests whether there is a correlation between the residual variables in the linear regression model. In this study using the Run Test, the data showed no autocorrelation if the significance was above 0.05 or 5%. The following are the results of the autocorrelation test using the Run Test:

Table 5 Runs Test

Unstandardized Residual

Test Value^a -.03210

Cases < Test Value 46 Cases >= Test Value 47

Total Cases 93

Number of Runs 39

Z -1.772

Asymp. Sig. (2-tailed) .076 a. Median

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Page : 25 Based on the data above, the test value result is -0.03210 with a 0.076 significant probability. The value is above 0.05, So it can be concluded that there is no autocorrelation between the residual variables.

Heteroscedasticity Test

The heteroscedasticity test tests whether there is a variance inequality from the residuals of one observation to another in the regression model. The heteroscedasticity test in this study used the Park test. The data shows no heteroscedasticity if the significance value is above 0.05. The following are the results of the heteroscedasticity test using the Park test:

Table 6 Park Test

Model

Unstandardized Coefficients

Standardized

Coefficients t Sig.

B Std. Error Beta

1

(Constant) -1.733 .654 -2.652 .011

CR -.006 .013 -.069 -.445 .659

NPM .599 .643 .151 .932 .357

TATO .105 .509 .034 .206 .838

a. Dependent Variable: Ln2ui

The table above shows that the significance of all variables is not statistically significant or the significance is greater than 0.05. Therefore, it can be concluded that the regression model in this study fits the heteroscedasticity assumption.

Multiple Linear Regression

The estimation of the regression model is a regression equation in the form of coefficients for each independent variable (Ghozali, 2018). This coefficient is obtained by predicting the value of the dependent variable with an equation. The estimation of the regression model is the estimation of the regression model that determines the ability of the independent variable to predict the existence of the dependent variable. The ability to predict is seen from the regression coefficient for each independent variable. The results of multiple linear regression analysis can be seen in the following table:

Table 7 Regression Coefficients

Model

Unstandardize d Coefficients

Standardiz ed Coefficient

s B Std.

Error Beta

1 (Consta

nt) -.302 .132

CR -.005 .005 -.060

NPM 3.42

9 .213 .866

TATO -.004 .092 -.003

Based on the above regression results, the following multiple linear regression equation is obtained:

(6) Where:

Y = Earnings Growth X1 = Current Ratio X2 = Net Profit Margin X3 = Total Assets Turnover e = Error

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Based on the equation of the multiple linear regression model above, it can be explained that the constant shows -0.302, which is negative. It means that assuming the independent variables are constant, namely the current ratio (CR), net profit margin (NPM), and total assets turnover (TATO), the predicted earning growth is -0.302. The results of the Current Ratio coefficient shows -0.005, which is negative. It means that the variable current ratio harms earnings growth. Assuming that other variables are constant, the profit growth will potentially decrease whenever there is an increase in the current ratio. The coefficient of Net Profit Margin results in 3,429, which is positive. It means that the NPM variable has a positive effect on profit growth. Every time there is an increase in the NPM variable, assuming other variables are constant, profit growth will potentially increase. The results of the Total Assets Turnover coefficient values of -0.004, which is negative. It means that the TATO variable has a negative effect on profit growth. Each TATO variable has increased; profit growth will decrease if other variables are constant.

The next step is to see the significance of the effect between the independent variables on the dependent variable, both the influence simultaneously and partially between the current ratio (CR), net profit margin (NPM), total assets turnover (TATO) on profit growth using the F-test and t-test.

Determination Coefficient ( )

The coefficient test R² is used to measure how far the ability of the independent variable in explaining the variation of the dependent variable is. The small value of R² indicates that the independent variables' ability to explain the dependent variable is minimal. The results of the R² analysis can be seen in the following table:

Table 8

Determination Coefficient

Model R R Square

Adjusted R Square

Std. Error of the Estimate 1 .866^a .751 .742 .40931109 a. Predictors: (Constant). TATO. CR. NPM

The table above shows that the Adjusted R Square value is 0.742 or equal to 74.2%. It means that the current ratio, net profit margin, and total asset turnover affect 74.2% on the dependent variable of profit growth. The rest of (100% - 74.2% = 25.8%) is influenced by other variables outside of this study.

Model of Fit Test (F-test)

The F test can be seen if the F-statistic is higher than F-table or the significance is less than 0.05, then the null hypothesis is rejected. For example, the results of the F test can be seen in the table below:

Table 9 F-Test

Model Sum of Squares df Mean

Square F Sig.

1

Regression 44.896 3 14.965 89.326 .000^b Residual 14.911 89 .168

Total 59.807 92

a. Dependent Variable: Earnings Growth b. Predictors: (Constant). TATO. CR. NPM

Based on the F test result above, the F-statistic value is 89.326 with a probability significance of 0.00, less than 0.05 or 5%. Therefore, it can be concluded that the current ratio, net profit margin, and total assets turnover affect earnings growth together.

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Page : 27 Individual Parameter Significance Test (t-test)

The individual parameter significance test conducted with the t-test aims to measure how far the influence of one independent variable in explaining the variation of the dependent variable with a significant level of 5%. The results of the individual coefficient analysis with t-test can be seen from the following table:

Table 10 t-Test

Model t Sig.

1

(Constant) -2.290 .024

CR -1.124 .264

NPM 16.090 .000

TATO -.048 .962

a. Dependent Variable: Earnings Growth

Based on the table above, the following conclusions can be drawn. The first null hypothesis (H0_1) stated that the current ratio does not affect earnings growth. The results of hypothesis testing that have been carried out using the t-test show that the current ratio variable obtains a t-statistic of -1.124 with a significant probability of 0.264 where the value is greater than 0.05. Therefore, it can be concluded that the current ratio has no significant effect on profit growth by having a negative direction. H0_1 is accepted. Then, the second null hypothesis (H0_2) stated that the net profit margin does not affect earnings growth. The results of hypothesis testing that have been carried out show that the net profit margin variable obtains a t-statistic of 16.090 with a significant probability of 0.00 where the value is smaller than 0.05. It means that the net profit margin variable has a significant positive effect on earnings growth. H0_2 is rejected. Finally, the third null hypothesis (H0_3) stated that total asset turnover does not affect earnings growth. The results of the hypothesis that have been carried out show that the total assets turnover variable obtains a t-statistic of -0.48 with a significant probability of 0.962 where the value is greater than 0.05. It means that the total assets turnover variable has no significant effect on profit growth with a negative value. H0_3 is accepted.

Discussions

Testing the first hypothesis shows that the current ratio (CR) does not affect profit growth. Therefore, H0_1 is accepted, and Ha_1 is rejected. The current ratio is a ratio to measure the company's ability to pay short-term obligations or debts that are due immediately when fully billed (Kasmir, 2018). It is contrary to the results of research by Prastya & Agustin (2018), Purnama & Idayati (2019), and Rusdianto & Waluyo (2020). It is also different from the research results conducted by Pawe & Santoso (2021). Then, the results of testing the second hypothesis show that Net Profit Margin has a significant effect on profit growth. Therefore H0_2 is rejected, and Ha_2 is accepted. The net profit margin shows the company's ability to generate net income against its total net sales (Hanafi, Mamduh, 2018). The higher the net profit margin, the greater the net profit earned by the company from sales activities. The results of this study are in line with the results of research conducted by Purnama & Idayati (2019), Rusdianto & Waluyo (2020), Wahyuni, Tri, Sri Ayem (2017), but contrary to research by Prastya & Agustin (2018) which obtained significant results negative and insignificant. Then, the results of testing the third hypothesis show that total asset turnover has no significant effect on profit growth and has a negative value. Therefore H0_3 is accepted, and Ha_3 is rejected. Total asset turnover measures the company's ability to use total assets to generate net sales.

The higher total assets turnover indicates the efficient use of all company assets to support sales activities. The higher this ratio, the better because the company's ability is considered high enough to generate profits (Prastya & Agustin, 2018). This research aligns with research by Purnama & Idayati (2019), Rusdianto & Waluyo (2020) but contradicts research by Prastya & Agustin (2018).

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CONCLUSIONS AND RECOMMENDATIONS

This research uses multiple linear regression models and hypothesis testing with the dependent variable profit growth and independent variables, namely the current ratio (CR), net profit margin (NPM), and total asset turnover (TATO). The results show that the current ratio has a negative effect but is insignificant to earnings growth. Then, the net profit margin has a positive and significant effect on profit growth. Finally, total asset turnover has a negative and insignificant effect on profit growth.

From the results of the conclusions and discussion above, the authors provide suggestions for further research so that researchers can further add other variables that affect the dependent variable (earnings growth), such as return on assets (ROA), gross profit margin (GPM), and other financial ratios. In addition, further researchers can add years to the research period in order to get a quality data sample. Then, further researchers can use statistical test tools other than SPSS used by researchers such as WarpPLS or Eviews 9. Finally, it is hoped that further researchers will examine companies in other sectors outside the manufacturing sector.

Researchers put suggestions to other parties, first, for companies are advised to improve company performance further, especially profitability, to increase profit growth and attract more investors. Second, investors who want to invest should pay more attention to factors that affect profit growth, such as the current ratio, net profit margin, and total asset turnover, which can predict profit growth.

The researchers realize that there are still many limitations in this research. The limitations include that this research only focuses on manufacturing companies in the consumer goods industry. Therefore, it cannot be used as a basis for measuring profit growth in general for companies listed on the IDX. In addition, there are still data outliers to the processed data samples. Another limitation is that the research results cannot be generalized to other industries.

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