EXAMINING THE IMPACT OF VARIOUS INTERNAL FINANCIAL AND MARKET RATIOS ON RETURN ON EQUITY (ROE) IN PUBLICLY LISTED NON-FINANCIAL FIRMS IN INDONESIA: A FIRM SIZE PERSPECTIVE

• Main Author: Risyad Rachman, Mohammad
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/75766
• Institution: Institut Teknologi Bandung

Financial statements and analysis have evolved, with ratios gaining popularity as tools to assess relationships between variables. Ratios, including Return on Equity (ROE), aid in evaluating company performance and guiding investor decisions. Due to its practical use, numerous studies have focused on ROE, highlighting its importance. This study investigates the factors affecting ROE based on internal financial ratios and market ratios, taking into account the firm's size perspective. Panel data analysis with a robust standard error method is employed, analyzing a sample of 284 non-financial publicly listed firms in Indonesia from 2018 to 2021. The research divides the sample into three groups based on firm size, represented by the respective total assets of each company. The classification of each group is determined using quartiles, sorting the companies based on their total assets. Thus, this study examines a total of seven ratios: Net Profit Margin, Assets Turnover, Financial Leverage, and Current Ratio as internal financial ratios, PBV & PER ratios as market ratios, and Return on Equity as the representation of firm’s financial performance. The findings of this research reveal that different financial ratios have varying degrees of influence on the financial performance of publicly listed non- financial firms in Indonesia, specifically on ROE while traditional ratios like the Current Ratio may not provide significant insights. DuPont-based ratios (Financial Leverage, Net Profit Margin, and Asset Turnover) exhibit a stronger relationship with ROE. Market ratios, particularly the Price to Book Value (PBV) ratio, significantly impact ROE for firms with lower asset values.