| dc.description.abstract | Source of corporate funding came from loans and equity capital. The aim
of optimal capital structure is to combine permanent funding source that
minimizes the cost of capital. In order to achieve optimal capital structure, the
balance of risks and costs of using debt is important to be maintained. The high
level of liquidity of the company represents that the firm is able to repay its short
term obligations, but from management point of view, high liquidity represents
the idle cash, excessive inventory and excessive accounts receivable.
This research was conducted with the aim to determine the effect of capital
structure (debt to equity ratio) and liquidity (current ratio) toward profitability
(return on equity). The population of this study is companies in the consumer
goods industry that are listed on the Indonesian Stock Exchange. Sampling
method used is purposive sampling method so obtained 22 consumer goods
companies. The type of data used is secondary data in the form of company's
financial report data in 2007 - 2010 in the form of annual data.
This study’s results prove that the capital structure (debt to equity ratio)
and liquidity (current ratio) have a significant effect either partially or
simultaneously on profitability (return on equity). With level of stability in the
consumer goods industry firms, companies can increase profitability with the use
of debt, because the interest tax shield is higher than financial distress cost. An
increasingly high level of liquidity in the company is also able to increase
profitability, because firms in the consumer goods industry have a low risk of
default so that the interest granted by the lender is lower. | en_US |
