THE EFFECT OF CURRENT RATIO AND DEBT TO ASSET RATIO ON

RETURN ON EQUITY IN THE GIANT DEPT STORE

IN JAKARTA

Mutawali 1, Vidya Amalia Rismanty 2, Siti Aprilliani 3

Pamulang University, Banten, Indonesia
[email protected] 1, [email protected] 2,
[email protected] 3

ABSTRACT

This study aims to determine the effect of Current Ratio and Debt to Asset Ratio on
Return on Equity at the Giant Dept Store in Jakarta.
The method used is explanatory research. The analysis technique uses statistical analysis with
regression testing, correlation, determination and hypothesis testing.

The results of this study, Current Ratio has no significant effect on Return on Equity of
14.9%, hypothesis testing obtained t count <t table or (1.109 <2.306). Debt to Asset Ratio has
no significant effect on Return on Equity of 1.6%, hypothesis testing is obtained t count <t
table or (- 0.338 <
2,306). Current Ratio and Debt to Asset Ratio simultaneously have a significant effect on
Return on Equity, the regression equation Y = 4,241 +
0.070X1 + - 0.080X2 and a determination value of 74.4%, hypothesis testing obtained the calculated F value>
F table or (8,739> 4,350).

Keywords: Current Ratio, Debt to Asset Ratio, Return on Equity.

 PRELIMINARY
1. Background
In the development of the business world in this era of globalization, competition
between companies is increasing, as many retail companies in Indonesia compete with each
other. Retail companies are companies that carry out direct sales of goods at each type of
outlet such as kiosks or stalls, traditional, modern markets, department stores, boutiques, and
others including delivery services which generally supply buyers for personal consumption.
The retail business in Indonesia can be divided into two main groups, namely modern retail
and traditional retail. Modern retail is a new development from traditional retail with
technological developments and changes in people's lifestyles that demand convenience and
practicality in shopping.

In this case, the competition between retail producers in Indonesia is increasing after
the crisis over the past few years, especially retail companies listed on the Indonesia Stock
Exchange. One retail company or retail market that is so fast, namely Giant Dept Store, has an
impact on the increasing competition for market share in today's business world. Companies
that want to be successful in the competition in the millennial era must have a company
strategy that can understand consumer behavior.

The retail market can continue to grow because of developments in various fields.
The retail market that is growing nationally does not only benefit large retailers or retail goods
producers, but also small retailers serving local communities. The first area that affects retail
market growth is demographic development. The increasing population causes all goods and
services to increase. The composition of the population according to changing ages, for
example due to the increasing stages of life, has made the variety of products to follow, both in
number and type.

The company's financial performance is one of the factors seen by potential investors
to determine stock investment. For a company, maintaining and improving financial
performance is a must so that these shares continue to exist and remain in demand by
investors. The financial statements issued by the company are a reflection of the company's
financial performance. "Financial reports are reports that show the company's current financial
condition or within a certain period" (Kasmir, 2012: 6). The purpose of financial statements that
shows the current condition of the company is the current condition. The current condition of
the company is where the company's financial condition is on a certain date (for balance sheet)
and a certain period (for income statement). Usually financial reports are made per period, for
example three months or six months only for internal company purposes. Meanwhile, a
broader report is conducted once a year. Financial statements describe the company's
financial posts.

Financial reports are used as a reliable and useful decision-making tool, a financial
report must contain high-value information for its users (Raharjo, 2011: 41).
One way to predict profit is by means of financial ratios, Irham Fahmi (2012: 107) “This
financial ratio is very important for analyzing the company's financial condition. Short-term and
medium-term investors are generally more interested in short-term financial conditions and the
company's ability to pay adequate dividends. This information can be found in a simpler way,
namely by calculating financial ratios as desired. " (Irham Fahmi 2012: 107)

Companies can meet their funding needs by prioritizing internal sources, but
sometimes the need for funds has increased due to the company's growth, and all internal
funds have been used, therefore there is no other choice but to use funds originating from
outside the company in the form of debt (debt). Efforts to maintain and develop the company,
namely by managing it must be done professionally, by paying attention to aspects that
support the survival of the company in the future. One aspect that needs to be considered in
running a company is the level of liquidity achieved by the company.

Liquidity relates to the problem of the ability of a company or business entity to meet
its financial needs that must be met. The level of liquidity and the factors that influence it need
to be considered by the internal company as a basis for determining policies for the
development of a company from year to year. The level of liquidity for the company is to find
out whether the company concerned requires sufficient money to be used smoothly in running
its business. Basically, to measure the level of company liquidity, it can be measured by using
the company's working capital position that runs from the profits earned within a certain time
where the capital can show the level of security of short-term creditors.

A high level of liquidity will indicate that the company is in good condition so that it will
increase demand for shares and of course will increase the share price. Share prices will also
tend to decline if investors consider the company to be too liquid, which means that there are
productive assets that are not utilized by the company, and not using these assets will add to
the burden on the company because of maintenance costs and storage costs that must be
paid continuously (Prayitno, 2010). : 22).

According to Irham Fahmi (2012: 121) Current Ratio (CR) is the current ratio, which is
a measure commonly used for short-term solvency, the ability of a company to meet its debt
needs when it matures. From the above definition it can be concluded that the Current Ratio
(CR) is
a financial ratio that is the result of a comparison between Current Assets and Current
Liabilities
To measure the extent to which a company is financed with debt, one of them can be
seen from the debt to equity ratio. Debt to Equity Ratio reflects the large proportion between
total debt (total debt) and total shareholder's equity (total equity), total debt is total liabilities
(both short and long term debt). Meanwhile, total shareholder's equity is total equity (total
paid-up share capital and retained earnings) owned by the company. Definition of Debt to
Equity Ratio according to Darsono and Ashari (2010: 54-55) Debt to Equity Ratio (DER) is one
of the leverage or solvency ratios. The solvency ratio is the ratio to determine the company's
ability to pay its obligations if the company is liquidated.

Debt to equity ratio is the ratio used to value debt to equity. This ratio is sought by
comparing all debt, including current debt to all equity, this ratio is used to find out the amount
of funds provided by the borrower (creditor) and the owner of the company. In other words, this
ratio serves to determine every rupiah of own capital that is used as collateral for debt.
(Kasmir, 2014: 157)

Profitability is the company's ability to earn a profit in relation to sales, total assets
and own capital. " (R. Agus Sartono 2010: 122). The company's ability to generate profits in its
operating activities is the main focus in the company's performance appraisal (company
analysis) because company profit is not only an indicator of the company's ability to fulfill its
obligations to shareholders, it is also an element in the creation of company value that shows
the company's prospects in the future. According to Kasmir (2011: 196), "The profitability ratio
is the ratio to assess the company's ability to seek profit."

From this definition, it can be concluded that profitability is a tool to measure the
company's ability to generate profits by comparing profits with assets or capital in a certain
period. The profitability ratio can also be used as a management performance evaluation tool
in achieving the effectiveness of a company. The better the profitability, the more trusting
investors will be to invest in the company. Good profitability will provide benefits for the
company and shareholders, for the company, will get an injection of funds from investors and
increase the market value of a company.

As for investors, they will get benefits in the form of dividends or capital gains from
the investment. Therefore, profitability is a very important financial ratio to examine in relation
to stock prices, especially for companies that certainly require a relatively large injection of
funds to expand. For companies, will get an injection of funds from investors and can increase
the market value of the company.
 The profitability ratio in this research is represented by return on equity (ROE). This
ratio is a ratio that shows the rate of return obtained by the owner or shareholders on
investment in the company. "Return on Equity (ROE), which measures a company's ability to
earn available profits to company shareholders. This ratio is also influenced by the size of the
company's debt. If the proportion of debt is bigger, this ratio will also be bigger. " (Agus
Sartono, 2010: 124). Meanwhile, according to Kasmir (2014: 204) Return on Equity is a ratio to
measure net profit after tax with your own capital. This ratio can show the efficiency of using
one's own capital, the higher this ratio, the better, meaning that the position of the company
owner is getting stronger, and vice versa.

One of the ratios used to determine stock returns is the profitability ratio with the
measurement of Return on Equity (ROE). This ratio measures net profit after tax with equity /
equity. ROE compares the amount of net profit to equity of common stock. The higher the ROE
means the better the company's performance in managing its capital to generate returns for
shareholders effectively and efficiently to earn a profit. (Tandelilin 2010: 315).

Based on this background, in this discussion the researcher takes the title, "The
Effect of Current Ratio and Debt to Equity Ratio to Return on Equity at the Giant Dept Store".

2. Problem Formulation
a. Is there any influence between Current Ratio and Return on Equity at the Giant Dept Store in
Jakarta?
b. Is there any influence between the Debt to Asset Ratio on Return on Equity at the Giant Dept
Store in Jakarta?
c. Is there a simultaneous influence between Current Ratio and Debt to Asset Ratio on Return
on Equity at the Giant Dept Store in Jakarta?

3. Research Objectives
a. To find out the effect of the Current Ratio on Return on Equity at the Giant Dept Store in
Jakarta.
b. This is to determine the effect of Debt to Asset Ratio on Return on Equity at the Giant
Dept Store in Jakarta.
c. To determine the simultaneous influence between Current Ratio and Debt to Asset Ratio on
Return on Equity at the Giant Dept Store in Jakarta.

LITERATURE REVIEW
1. Current Ratio
Current Ratio (CR) is a "ratio to measure a company's ability to pay short-term
obligations or debt that is due immediately when collected as a whole". Cashmere (2014: 134)
Current Ratio = x 100%

.
2. Debt to Asset Ratio
Debt to equity ratio (DER) is the "ratio used to value debt to equity." This ratio is found by
comparing all debt, including current debt, to total equity. Cashmere (2014-157) Debt to equity
ratio =
x 100%

3. Return on Equity
Return on Equity (ROE) is a "ratio to measure net profit after tax with your own capital." This
ratio shows the efficient use of own capital. The higher this ratio, the better. Cashmere (2014:
204) Return on Equity =
x 100%

RESEARCH METHODS
1. Population
The population in this study is based on the financial reports for 5 years of the Giant Dept Store in
Jakarta
2. Samples
The sampling technique in this study was saturated sample, where all members of the
population were sampled. Thus the sample in this study was financial statements for 5
years.
3. Type of Research
The type of research used is associative, where the aim is to find out how to find the
relationship between the independent variables and the dependent variable

4. Data analysis method

In analyzing the data, the classical assumption test, regression, correlation coefficient, determination coefficient
and hypothesis test were used, either partially or simultaneously.

RESEARCH RESULT

1. Descriptive Analysis
This test is used to determine the minimum and maximum percentage, average
percentage and standard deviation of each variable. The results are as follows:

Descriptive Statistics Analysis Results Table

Descriptive Statistics
Std.
N Minimum Maximum Mean Deviation
Current Ratio (X1) 9 113.31 204.89 169.51 31,600
Debt to Asset Ratio (X2) 9 70.41 143.73 121.39 24,961
Return on Equity (Y) Valid N 9 4.04 8.31 6.39 1,494
(listwise) 9

Current Ratio obtained a minimum value of 113.31% and a maximum value

 204.89% with an average of 169.51% with a standard deviation of 31.600%. Debt to Asset
Ratio obtained a minimum value of 70.41% and a maximum value of 143.73% with an average
value of 121.39% with a standard deviation of 24.961%.

Return on Equity obtained a minimum value of 4.04% and a maximum value

8.31% with an average of 8.31% with a standard deviation of 1.494%.

2. Verification Analysis.
This analysis aims to determine the effect of the independent variable on the dependent
variable. The test results are as follows:
a. Multiple Linear Regression Analysis
This regression test is intended to determine changes in the dependent variable if the
independent variable changes. The test results are as follows:

Multiple Liner Regression Testing Results Table

Coefficients a
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 4,241 1,699 2,496 . 047

Current Ratio (X1) . 070 . 017 1,486 4,135 . 006

Debt to Asset Ratio (X2) -. 080 . 022 - 1,343 - 3,738 . 010
a. Dependent Variable: Return on Equity (Y)
Based on the test results in the table above, the regression equation Y = 4.241 +
0.070X1 - 0.080X2 is obtained. From this equation it is explained as follows:

1) A constant of 4.241 means that if the Current Ratio and Debt to Asset Ratio do not
exist, then there is a Return on Equity value of
4,241 points
2) The Current Ratio regression coefficient is 0.070, this number is positive, meaning that
every time there is an increase in the Current Ratio of 0.070, the Return on Equity will
also increase by 0.070 points.
3) The Debt to Asset Ratio regression coefficient is -0.080, this figure is positive, meaning
that every time there is an increase in the Debt to Asset Ratio of -0.080, the Return on
Equity will also increase by -0.080 points.

b. Correlation Coefficient Analysis

Correlation coefficient analysis is intended to determine the level of strength of the
relationship between the independent variable and the dependent variable either partially
or simultaneously. The test results are as follows:

Table of Correlation Coefficient Testing Results Current Ratio Against Return on Equity.

Correlations b
 Current Ratio Return on Equity
(X1) (Y)
Current Ratio (X1) Pearson Correlation 1 . 386
Sig. (2-tailed) . 304

Return on Equity (Y) Pearson Correlation . 386 1

Sig. (2-tailed) . 304

Based on the test results obtained a correlation value of 0.386 means that the
Current Ratio has a moderate relationship to Return on Equity.

Table of Testing Results Correlation Coefficient Debt to Asset Ratio to Return on Equity.

Correlations b
Debt to Asset Return on Equity
Ratio (X2) (Y)
Debt to Asset Ratio (X2) Pearson Correlation 1 -. 127
Sig. (2-tailed) . 745

Return on Equity (Y) Pearson Correlation -. 127 1

Sig. (2-tailed) . 745

Based on the test results obtained a correlation value of -0.127 means that the
Debt to Asset Ratio has a weak relationship with Return on Equity.

Table of Correlation Coefficient Testing Results Current Ratio and Debt to Asset Ratio
Simultaneously to Return on Equity.

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 . 863 a . 744 . 659 . 873
a. Predictors: (Constant), Debt to Asset Ratio (X2), Current Ratio (X1)
Based on the test results obtained a correlation value of 0.863 means that the
Current Ratio and Debt to Asset Ratio simultaneously have a very strong relationship
to Return on Equity.

c. Analysis of the coefficient of determination

The coefficient of determination analysis is intended to determine the percentage of
influence of the independent variable on the dependent variable either partially or
simultaneously. The test results are as follows:

Table of Test Results of Determination Coefficient of Current Ratio Against Return on Equity.

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 . 386 a . 149 . 028 1,474
a. Predictors: (Constant), Current Ratio (X1)
 Based on the test results, it was found that the determination value was 0.149 meaning that
the Current Ratio had an influence contribution of 14.9% to the Return on Equity.

Table of Test Results for the Determination of the Debt to Asset Ratio to the Return on Equity.

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 . 127 a . 016 -. 124 1,585
a. Predictors: (Constant), Debt to Asset Ratio (X2)
Based on the test results, the determination value is 0.016, which means that the
Debt to Asset Ratio has an influence contribution of 1.6% to Return on Equity.

Table 8.Test Results of Determination Coefficient Current Ratio and Debt to Asset Ratio
Against Return on Equity.

Model Summary
Adjusted R Std. Error of the
Model R R Square Square Estimate
1 . 863 a . 744 . 659 . 873
a. Predictors: (Constant), Debt to Asset Ratio (X2), Current Ratio (X1)
Based on the test results, the determination value is 0.744, which means that the
Current Ratio and Debt to Asset Ratio simultaneously have an influence contribution of
74.4% to Return on Equity, while the remaining 25.6% is influenced by other factors.

d. Hypothesis testing
Partial hypothesis test (t test)
Hypothesis testing with the t test is used to determine which partial hypothesis is
accepted.
Table of Hypothesis Test Results Current Ratio to Return on Equity.

Coefficients a
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 3,293 2,838 1,160 . 284

Current Ratio (X1) . 018 . 016 . 386 1,109 . 304

a. Dependent Variable: Return on Equity (Y)
Based on the test results in the table above, the t value <t table or (1.109
<2.306) is obtained, thus there is no significant effect between Current Ratio on Return
on Equity.
Table of Hypothesis Test Results Debt to Asset Ratio to Return on Equity.

Coefficients a
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 7,314 2,776 2,634 . 034
 Debt to Asset Ratio (X2) -. 008 . 022 -. 127 -. 338 . 745
a. Dependent Variable: Return on Equity (Y)
Based on the test results in the table above, the value of t count <t table or (-
0.338 <2.306) is obtained, thus there is no significant effect between Debt to Asset
Ratio on Return on Equity.

Simultaneous Hypothesis Test (Test F)

Hypothesis testing with the F test is used to determine which simultaneous hypothesis
is accepted.
Table of Hypothesis Test Results Current Ratio and Debt to Asset Ratio Against Return on Equity.

ANOVA a
Model Sum of Squares df Mean Square F Sig.
1 Regression 13.309 2 6,654 8,739 . 017 b
Residual 4,569 6 . 761

Total 17,878 8

Based on the test results in the table above, the calculated F value> F table or
(8,739> 4,350), thus there is a significant effect between Current Ratio and Debt to
Asset Ratio on Return on Equity.

DISCUSSION OF RESEARCH RESULTS

1. The Effect of Current Ratio on Return on Equity
Current Ratio has a significant effect on Return on Equity with a correlation of 0.386
or has a moderate relationship with an influence contribution of 14.9%. Hypothesis testing
obtained t value <t table or (1.109 <2.306). Thus, there is no significant effect between
Current Ratio and Return on Equity.

2. Effect of Debt to Asset Ratio on Return on Equity

Debt to Asset Ratio has a significant effect on Return on Equity with a correlation of
-0,127 or has a strong relationship with an influence contribution of 1.6%. Hypothesis
testing obtained t value <t table or (- 0.338 <2.306). Thus, there is no significant effect
between Debt to Asset Ratio and Return on Equity.

3. The Influence of Current Ratio and Debt to Asset Ratio on Return on Equity

Current Ratio and Debt to Asset Ratio have a significant effect on Return on Equity by
obtaining the regression equation Y = 4.241 + 0.070X1 + -
0.080X2, the correlation value is 0.863 or has a strong relationship with the contribution of
the influence of 74.4%, while the remaining 25.6% is influenced by other factors.
Hypothesis testing obtained the value of F count> F table or (8,739> 4,350). Thus there is a
significant influence between Current Ratio and Debt to Asset Ratio on Return on Equity.
CONCLUSIONS AND RECOMMENDATIONS
1. Conclusion
a. Current Ratio has no significant effect on Return on Equity with a contribution of
influence of 14.9%. Hypothesis test obtained t value <t table or (1.109 <2.306).

b. Debt to Asset Ratio has no significant effect on Return on Equity with a contribution of
influence of 1.6%. Hypothesis test obtained t value <t table or (- 0.338 <> 2.306).

c. Current Ratio and Debt to Asset Ratio have a significant effect on Return on Equity with
an influence contribution of 74.4% while the remaining 25.6% is influenced by other
factors. Hypothesis test obtained the value of F count> F table or (8,739> 4,350).

2. Suggestions
a. Companies must optimize all company resources to achieve higher profits

b. Companies must find other alternatives to attract investors so that capital increases.

c. The company's performance can strengthen the dbet to equity ratio so that the euity value increases

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