Analysis of the Effect of Operating Leverage and Financial Leverage on Companies Profitability Listed on Indonesia Stock Exchange

Abstract

The purpose of this study was to explain the influence of the Degree of Operating Leverage (DOL) and Degree of Financial Leverage (DFL) on company profitability. The population in this study was consumer goods companies listed on the Indonesia Stock Exchange in 2017-2018, with 33 sample companies selected using purposive sampling. Method research was causality research and the data used is quantitative data. The company published a complete financial report from 2017 to 2018 which could be accessed through the Indonesian Stock Exchange Website and related company websites. The data were analyzed using the SPSS 21 application. The result shows that individual testing of DOL with profitability and DFL with profitability and joint testing of DOL and DFL with profitability found that DOL and DCL did not have a significant effect on the changes in company profitability (ROE and ROA) .
 

The Impact of Leverages and Operating Efficiency on Market Value Added: Empirical Evidence from India

“…Some researchers found a direct relationship between DFL and profitability (Chandrakumarmangalam & Govindasamy, 2010; Kumar, 2014; Mseddi & Abid, 2010; Murugesu & Subramaniam, 2016), while some others observed a negative relationship (Ahmad et al, 2015; Gatsi et al, 2013; Kaur & Kaur, 2015; Khodaei Valahzaghard & Taherinejhad, 2012). Few other researchers found no linear relationship between the above two variables (Asraf & Desda, 2020; Sen, 2018).…”

“…Some researchers found a direct relationship between DFL and profitability (Chandrakumarmangalam & Govindasamy, 2010;Kumar, 2014;Mseddi & Abid, 2010;Murugesu & Subramaniam, 2016), while some others observed a negative relationship (Ahmad et al, 2015;Gatsi et al, 2013;Kaur & Kaur, 2015;Khodaei Valahzaghard & Taherinejhad, 2012). Few other researchers found no linear relationship between the above two variables (Asraf & Desda, 2020;Sen, 2018). Some researchers found a positive relationship between DOL and profitability (Chandrakumarmangalam & Govindasamy, 2010;Chen et al, 2019;Kumar, 2014;Mseddi & Abid, 2010;Murugesu & Subramaniam, 2016), while some others evidenced a negative relationship; Baker (1973), Selling and Stickney (1989).…”

“…Some researchers found a positive relationship between DOL and profitability (Chandrakumarmangalam & Govindasamy, 2010; Chen et al, 2019; Kumar, 2014; Mseddi & Abid, 2010; Murugesu & Subramaniam, 2016), while some others evidenced a negative relationship; Baker (1973), Selling and Stickney (1989). Also, many studies conclude that there is no significant relationship between DOL and profitability (Asraf & Desda, 2020; Sen, 2018).…”

Impacts of Change in Capital Structure on the Profitability of Pharmaceutical Firms: A Study of Pharmaceutical Industry in Singapore

“…Operating Leverage ratio (OL) is calculated by the percentage change of EBIT over the percentage change of sales, which measures the degree of operating leverage of a company and reflects at what proportion the operating income will increase with sales [9]. The degree of operating leverage is a critical factor affecting business risk level, operating and financial performance, and even valuation of companies [10].…”

“…The profitability is positively correlated with the degree of operating leverage that measures the company's sensitivity to the market. Basically, a higher proportion of sales converted to EBIT represents that a higher volatility of operating incomes to sale changes [9]. Thus, operating leverage is beneficial to pharmaceutical companies.…”