Journal of Economics Business Industry E-ISSN: 3025-0986

JEBIN Volume 1, Number 1, 2023, pp 1-9

P-ISSN: 3025-0528

https://jurnaljepip.com/index.php/Jebin/index

Identify Financial Ratios To Measure The Company's Financial

Performance
Syahnisa Sari Lubis1
University of Muhammadiyah Sumatera Utara, Medan, Indonesia
1
syahnisa.lubis@gmail.com

Received: May 18, 2023; Revised: June 15, 2023; Accepted: June 30, 2023

ABSTRACT
This study aims to determine and analyze financial ratios to measure financial performance at PT. ABC is based on SOE
and Theoretical Standards. This research approach is qualitative descriptive research, where qualitative descriptive
research analyzes data for problems of independent variables, such as data in the form of numbers. The type of data in
this study is qualitative data, namely data in the form of financial statements, namely profit/loss statements and balance
sheet statements. This data collection technique is a documentation technique on secondary data sources of financial
statements. The results of this study show that in the Company PT. ABC, the financial performance of the calculation of
liquidity ratios (current ratio and cash ratio) can be said to be good, the financial performance of the analysis of solvency
ratios (Debt to Equity Ratio and Debt to Asset Ratio) can be said to be good, financial performance from the calculation
of profitability ratios (Return On Equity and Net Profit Margin) can be said to be less good, and financial performance
from the analysis of activity ratios (Fixed Asset Turnover and Total Asset Turnover) It can be said to be not good.

Keywords: Financial Ratio, Liquidity Ratio, Solvency Ratio, Profitability Ratio, Activity Ratio

INTRODUCTION
A company's financial performance describes activities to achieve business goals for a certain period.
Financial performance is an analysis conducted to see how the Company has implemented financial
implementation rules properly and correctly (Yousaf, 2022). Company performance can be measured by
analyzing and evaluating past financial statements and used to predict future financial position and
performance (Hamal, 2022). One of the tools used to determine the Company's financial condition is financial
statements (Baranes, 2021).
PT ABC is a State-Owned Enterprise engaged in port services, container services, container terminals
and depots, shipyard businesses, land, electricity, and water services, fuel filling, consolidation, and
distribution, including animals, and consulting services to ports and customs area businesses. The problems
are a decrease in the liquidity ratio as measured by the current balance and cash ratio in the Company and
an increase in the solvency ratio calculated by the Debt to Equity Ratio (DER) and Debt to Asset Ratio (DAR).
Financial statements are an overview of the Company's financial position that can be used in decision-
making for company management (Zhang, 2022). Financial statements describe the financial condition and
results of the Company's operations at a particular time or period. Financial statements include income and
balance sheet statements (Zarei, 2020).
It can be done using financial ratios to measure the Company's economic performance. Financial
Ratios are comparing the numbers in the financial statements by dividing one number by another (Tsiouni,
2022). Financial ratios are divided into four often-used ratios: liquidity ratio, solvency ratio, profitability ratio,
and activity ratio (Cengiz, 2020). Table 1 to Table 2 shows the financial condition of the Company.

Table 1 Results Of The Company's Liquidity Ratio for The Period of The 1st Year To The 5th Year
Liquidity Ratio
Year To - Current Ratio Cash Ratio
1 208.18% 179.21%
2 203.30% 175.02%
3 158.52% 132.74%
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 4 164.15% 145.59%
5 121.19% 102.70%
Average 171.07% 147.05%

The average total result of the Current Ratio in the Company is 171.07%. The value of the current ratio
has increased for two years. Meanwhile, the current ratio value has decreased for three years. This can also be
seen from the Company's financial data, namely existing assets and present debt owned by the Company,
where current assets have increased above the average in the 4th year and 5th year. While in the 1st to 3rd
years, it decreased.

Table 2 Results of The Company's Solvency Ratio for The Period of The 1st Year to The 5th Year
Solvency Ratio
Year To -
DER DAR
1 64.11% 39.07%
2 60.20% 37.58%
3 50.87% 33.72%
4 69.75% 41.09%
5 73.47% 42.35%
Average 63.68% 38.76%

The average total yield of Debt to Equity Ratio (DER) in the Company is 63.68%. The value of DER has
increased for three years, namely in the 1st, 4th and 5th years. At the same time, the value of DER has
decreased for two years, namely in the 2nd and 3rd years. The problems that occur are a decrease in the
liquidity ratio as measured by the current balance and cash ratio in the Company, an increase in the solvency
ratio calculated by the Debt to Equity Ratio (DER) and Debt to Asset Ratio (DAR) in the Company, an increase
in the profitability ratio measured by Net Profit Margin (NPM), while as measured by Return On Equity (ROE)
decreased in the Company, The increase occurred in the activity ratio measured by Total Asset Turnover
(TATO) and Fixed Asset Turnover (FATO) in the Company.
The purpose of this study is to determine the causes of the decrease in liquidity ratios in the Company,
find out the grounds for the increase in solvency ratios in the Company, find out the causes of the decline
and rise in profitability ratios in the Company, find out the causes of the increase in the percentage of activity
in the Company (Filhaq et al., 2023; Permadi & Nisa, 2023; Pohan et al., 2023; Sari & Dini, 2023).
The liquidity ratio is carried out to measure the level of the Company's ability to meet its short-term
debt. The liquidity ratio measures the Company's ability to meet short-term financial obligations through
debt. The percentages used to measure a company's liquidity are the Current Ratio and Cash Ratio (Haque,
2020). The current Ratio is a comparison between existing assets and present debt. The Cash Ratio compares
cash and banks with a current deficit (Malakhova, 2020) (Sang, 2021).

METHODS
Data Collection Techniques
The data collection technique used in this study is a documentation study in the form of data
obtained from the balance sheet and income statement of the Company PT. ABC from year 1 to year 5
(Kartikasary, 2021).

Data Processing Techniques

The data processing techniques used in this study are liquidity ratio analysis techniques, solvency
ratios, profitability ratios, and activity ratios (Batóg, 2021).

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Financial Ratio analysis techniques used to analyze company financial statement data are on the balance
sheet and income statement. The steps taken to investigate the data are by: (Haque, 2020; Imhanzenobe,
2020; Sriram, 2020):
1) Calculating the Current Ratio
2) Calculating Cash Ratio
3) Calculating Debt to Equity Ratio (DER)
4) Calculating Debt to Asset Ratio (DAR)
5) Calculating Return on Ratio (ROE)
6) Calculating Net Profit Margin (NPM)
7) Calculating Fixed Asset Turnover (FATO)
8) Calculating Working Capital Turnover (TATO)
Figure 1 shows a Flowchart framework of thinking in Data Processing

Figure 1 Flow Chart Thinking Framework in Data Processing

RESULTS
Current Ratio
The formula used is as follows:

Current Asset
Current Ratio = × 100%
Current Liabilities
The development of the calculation of the current ratio is shown in Table 3.

Table 3 Current Ratio Calculation Results

Year To - Current Assets (IDR) Current Debt (IDR) Current Ratio
1 1,274,054 611,997 208.18%
2 1,478,308 727,173 203.30%
3 1,766,673 1,114,461 158.52%
5 2,481,343 1,511,587 164.15%
6 2,209,548 1,823,138 121.19%
Average 1,841,985 1,157,671 171.07%

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 Table 3, the average total result of the Current Ratio is 171.07%. The value of the current ratio has
increased for two years, namely in the 1st year and the 2nd year. While the current ratio value has decreased
for three years, namely in the 3rd year, 4th year, 5th year

Cash Ratio
The formula used is as follows:

Cash + Cash Equivalent

Cash Ratio = × 100
Current Liabilities
The result of the cash ratio calculation at the enterprise is shown in Table 4.

Table 4 Cash Ratio Calculation Results

Year To - Cash and Cash Equivalents Current Debt (IDR) Cash Ratio
(IDR)
1 1,096,770 611,997 179.21%
2 1,272,712 727,173 175.02%
3 1,479,384 1,114,461 132.74%
5 2,200,769 1,511,587 145.59%
6 1,872,411 1,823,138 102.70%
Average 1,584,409 1,157,671 147.05%

Table 4 shows that the average total yield of Cash Ratio is 147.05%. The value of the cash ratio has
increased for two years, namely in the 1st year and the 2nd year. Meanwhile, the value of the cash ratio has
decreased for three years, namely in the 3rd year, 4th year, and 5th year.

Debt to Equity Ratio (DER)

The formula used is as follows:

Total Liabilities
Debt to Equity Ratio = × 100%
Total Equity
The calculation of the debt-equity ratio (DER) is shown in Table 5.

Table 5 Results of Debt to Equity Ratio (DER) Calculation

Year To - Total Debt (IDR) Total Assets (IDR) DAR
1 1,788.,936 4,579,297 39.07%
2 1,819,920 4,843,054 37.58%
3 1,851,690 5,491,916 33.72%
5 3,000,175 7,301,351 41.09%
6 3,602,920 8,507,143 42.35%
Average 2.,412,728 6,144,552 38.76%

Table 5 shows the average total yield of Debt to Asset Ratio (DAR) is 38.76%. The value of DAR has
increased for three years, namely in the 1st year, 4th year, and 5th year. At the same time, the value of DAR
has decreased for two years, namely in the 2nd year and 7th year.

Debt to Asset Ratio (DAR)

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The formula used is as follows:

Total Liabilities
Debt to Asset Ratio = × 100%
Total Assets

The calculation results of the Asset Ratio (DAR) are shown in Table 6.

Table 6 Debt to Asset Ratio (DAR) Calculation Results

Year To - Total Debt (IDR) Total Assets (IDR) DAR
1 1,788,936 4,579,297 39.07%
2 1,819,920 4,843,054 37.58%
3 1,851,690 5,491,916 33.72%
5 3,000,175 7,301,351 41.09%
6 3,602,920 8,507,143 42.35%
Average 2,412,728 6,144,552 38.76%

Table 6 shows the average total yield of the Debt to Asset Ratio (DAR) is 38.76%. The value of DAR
has increased for three years, namely in the first year, fourth year, and sixth year. At the same time, the value
of DAR has decreased for two years, namely in the second and third years.

Return on Equity (ROE)

The formula used is as follows:

Earnings Aƒter Tax

Return On Equity = × 100%
Total Equity

The result of the Return on Equity (ROE) calculation is shown in Table 7.

Table 7 Return on Equity (ROE) Calculation Results

Year To - Profit After Tax (IDR) Total Equity (IDR) ROE
1 489,246 2,790,361 17.53%
2 534,898 3,023,134 17.69%
3 700,368 3,640,225 19.24%
5 733,302 4,301,176 17.05%
6 805,145 4,904,224 16.42%
Average 652,592 3,731,824 17.59%

Table 7 shows the average total Return on Equity (ROE) is 17.59%. The ROE value has increased for
two years, namely in the second and third years. At the same time, the ROE value has decreased for three
years, namely in the fourth, fifth, and sixth years.
Net Profit Margin (NPM)

Earning Aƒter Tax

Net Proƒit Margin = × 100%
Sales
The formula used is as follows:
The calculation result of the Net Profit Margin (NPM) is shown in Table 8.

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 Table 8 Net Profit Margin (NPM) Calculation Results
Year To - Profit After Tax (IDR) Sales (IDR) NPM
1 489,246 1,893,989 25.83%
2 534,898 2,095,520 25.53%
3 700,368 2,340,724 29.92%
5 733,302 2,408,900 30.44%
6 805,145 2,751,107 29.27%
Average 652,592 2,298,048 28.20%

Table 8 shows that the average total Net Profit Margin (NPM) yield is 28.20%. The NPM value has increased
for three years, namely in the third, fifth, and sixth years. Meanwhile, the NPM value has decreased for two
years, namely in the first and second years.
Total Asset Turnover (TATO)
The formula used is as follows:

Sales
Fixed Assets Turnover = × 100%
Fixed Assed

The calculation result of Total Asset Turnover (TATO) is shown in Table 9.

Table 9 Total Asset Turnover (TATO) Calculation Results

Year To - Sales (IDR) Total Assets (IDR) Total Asset
Turnover
1 1,893,989 4,579,297 0.4
2 2,095,520 4,843,054 0.4
3 2,340,724 5,491,916 0.4
5 2,408,900 7,301,351 0.3
6 2,751,107 8,507,143 0.3
Average 2,298,048 6,144,552 0.4

Table 9 shows that the average total Total Asset Turnover (TATO) result is 0.4 times. The value of TATO has
increased for three years, namely in the first year, second year and third year. At the same time, the value of
TATO has decreased for two years, namely in the fourth year and fifth year.
Working Capital Turnover
The formula used is as follows:

Sales
Total Assets Turnover = × 100%
Total Assed
The calculation result of Total Asset Turnover (TATO) is shown in Table 10.

Table 10 Results of Fixed Asset Turnover (FATO) Calculation Results

Year To - Sales (IDR) Fixed Assets (IDR) FATO
1 1,893,989 3,305,244 0.6
2 2,095,520 3,364,746 0.6
3 2,340,724 3,725,242 0.6
5 2,408,900 4,820,008 0.5

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 6 2,751,107 6,297,595 0.4
Average 2,298,048 4,302,567 0.5

From Table 10, the average total Fixed Asset Turnover (FATO) yield is 0.5 times. The value of FATO has
increased for three years, namely in the first year to the fifth year. At the same time, the value of FATO has
decreased for one year, namely in the sixth year.

DISCUSSION
The calculation of the current ratio is carried out by comparing current assets with current debt. The
Company's current assets increased more than its current debt. The existing assets increased due to
increased cash, accounts receivable, and inventory. The average total current ratio result in the Company is
171.07%. The results of this study align with research (Boďa, 2021) Where the current balance can be said to
be good because the Company can meet its short-term debt.
The increase in cash occurred due to increased income that service users, bank loans, and bonds had
repaid. The average total cash yield ratio in the Company is 147.05%. Theoretically, having an above-average
cash ratio starting from year one and year two shows that the Company can pay its short-term debt using
the cash owned by the Company. Although it can pay its short-term debt, it still needs to increase some
money in the Company. According to (Zhang, 2022), the average cash ratio is 50%. The results of this study
align with the researchers (Chen, 2022), Where the cash ratio can be said to be good because the Company
can meet its short-term debt by using the cash owned by the Company.
The average total DER yield on the Company is 63.68%. Theoretically, having an Equity Ratio (DER)
below average from year 2 to year 3 shows that the Company can cover all its obligations with the equity
owned by the Company. In year 1, year four, and year five, the Equity Ratio (DER) is above average. Although
it can cover all its liabilities, it still needs to increase equity in the Company. According to (Ulbert, 2022), the
average cash ratio is 80%. This study's results align with the researcher's (Barsukova, 2020). DER has a pretty
good ratio because owners mainly fund the equity owned by the Company, and creditors support the other
part.
The Company's total assets have increased more than the total debt. The increase in total assets
occurred due to increased current and non-current assets. The average total DAR yield was 38.76%.
Theoretically, the Asset Ratio (DAR) is below average from year 2 to year 3, showing that the Company can
cover all its liabilities with the total assets owned by the Company. In year 1, year four, and year five, the Debt
to Asset Ratio (DAR) is above average. Although it can cover all its liabilities, it still needs to increase assets in
the Company again. According to (Campbell, 2021), the average Debt to Total Asset Ratio (DAR) is 50%. The
results of this study align with research (Altamirano, 2022) where the DAR value is good because the
Company can cover all its obligations.
The average total Return on Equity (ROE) is 17.59%. Theoretically, having a Return on Equity (ROE)
below average from year 1 to year five shows that the Company has not been able to optimize its capital to
generate profits. According to (Zarei, 2020), the average Return on Equity (ROE) is 40%. This study's results
align with the research (Widagdo, 2020). Return on Assets has decreased, and Return on Equity in fluctuating
conditions that show the Company is generating profits is considered less good because it constantly
changes.
The average total cash yield ratio is 28.20%. Theoretically, having an above-average Net Profit
Margin (NPM) from year 3 to year five shows that the Company can increase profits generated from sales
owned by the Company. From year 1 to year 2, Net Profit Margin (NPM) is below average, although it can
increase profits generated from sales but still needs to increase sales at the Company. According to (Zhang,
2021), the average Net Profit Margin (NPM) is 20%. This study's results align with the research (Tsiouni, 2022).
NPM is said to be good at generating higher profits with sales made.
The Total Asset Turnover (TATO) result is 0.4 times. I am theoretically, having a Total Asset Turnover
(TATO) below average from year 1 to year five shows that the Company has not optimized its assets in
earning revenue. According to (Moses, 2022), the average Total Asset Turnover (TATO) is twice as high. This
study's results align with the research (Abualrob, 2020). The Company's past four years are still in poor
condition, and this is due to less effective collection of accounts receivable and less efficient use of fixed
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assets such as production machines so that the more excellent value cannot be balanced in increasing sales
from the increase in overall assets.

CONCLUSION
Based on the results of financial performance research, liquidity ratios are measured through current
and cash ratios. Theoretically, the financial performance of the liquidity ratio can be said to be good.
Likewise, with the Ministry of State-Owned Enterprises' Standards, the financial performance of the liquidity
ratio can also be said to be good. Still, one year of its financial performance is measured through a current
ratio that is not good because it is below the SOE standard. The solvency ratio is calculated through the Debt
to Equity Ratio (DER) and Debt to Total Asset Ratio (DAR). Theoretically, the financial performance of the
solvency ratio can be said to be good. Based on the results of financial performance research, profitability
ratios are measured through Return on Equity (ROE) and Net Profit Margin (NPM). Theoretically, the financial
performance of the profitability ratio can be less suitable because four years of financial performance are
measured through Return on Equity (ROE), which is below the standard average. So, with the Ministry of
State-Owned Enterprises Standards, financial performance measured through Return on Equity (ROE) can be
less good and only one year of sound financial performance. Based on the results of financial performance
research, activity ratios are measured through Total Asset Turnover (TATO) and Fixed Asset Turnover (FATO).
Theoretically, the financial performance of the activity ratio can be said to be less good. Likewise with the
Ministry of State-Owned Enterprises Standards, financial performance measured through Total Asset
Turnover (TATO) can be said to be less good.

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