Profitability and the Firm's Value

Abstract

The cause of this research is to investigate and prove the impact of ROA, ROE, NPM, and GPM on firm’s value (Tobin's Q) either partially or simultaneously and decide which profitability ratio is more dominant in explaining Tobin's Q variance. The analysis was carried out on companies listed in the Jakarta Islamic Index (JII) for 2015-2020. The sample selected was issuers consistently registered with JII during the 2015-2020 period, and 11 issuers were selected. The results of the analysis show ROA and NPM partially sizeable good-sized effect on Tobin's Q, whilst ROE and GPM do not have any effect. ROA is positively correlated, and NPM is negatively correlated. However, all independent variables simultaneously have a significant impact on Tobin's Q. The R-square value of is 0.953648 shows that 95.37% of Tobin's Q variance can be explained by changes in ROA, ROE, GPM, and NPM, while other factors outside the model cause the remaining 4.43%. Of the four variables tested, ROA is the more dominant variable affecting Tobin's Q and can be used as the best proxy for corporate profitability.

Mediating Role of Dividend Policy on the Effect of Profitability, Company Size, and Capital Structure on the Value of Manufacturing Companies in the Indonesia Stock Exchange

“…This situation will be used by company managers to obtain capital resources in the form of shares. The results of this study are not in line with research conducted Jonnius & Setya Marsudi (2021) which is able to prove that Profitability individually has a significant positive effect on firm value, and the hypothesis is accepted. The positive effect of firm value is a good prospect for companies to attract investors, because Profitability is the most important indicator for a company, where the higher the ratio, the higher the profit the company has.…”

A Financial Performance Analysis of Indian Oil Exploration & Drilling Sector

“…The implications of studying the financial performance of the Indian oil exploration and drilling sector are profound and far-reaching, with implications extending across various dimensions of the economy and society [22][23][24][25][26][27]. Understanding the sector's financial dynamics can provide policymakers with valuable insights to formulate effective regulations and policies that foster investment, innovation, and sustainable development.…”

How Do Profitability and Institutional Ownership Drive Value through Dividend Policy? Evidence from Nigeria

“…Research has consistently shown a positive and significant effect of profitability, measured by Return on Assets (ROA), on firm value, indicated by Tobin's Q (Hill & Jones, 1992;Jonnius & Marsudi, 2021;Kurniati et al, 2022;Sutrisno & Panuntun, 2020). However, Return on Equity (ROE) has been found to either negatively impact or have no significant effect on Tobin's Q (Jonnius & Marsudi, 2021;Siti Fatimah, 2022;Nguyen et al, 2022).The role of dividend policy in mediating the relationship between profitability and firm value has also been explored.…”

“…Research has consistently shown a positive and significant effect of profitability, measured by Return on Assets (ROA), on firm value, indicated by Tobin's Q (Hill & Jones, 1992;Jonnius & Marsudi, 2021;Kurniati et al, 2022;Sutrisno & Panuntun, 2020). However, Return on Equity (ROE) has been found to either negatively impact or have no significant effect on Tobin's Q (Jonnius & Marsudi, 2021;Siti Fatimah, 2022;Nguyen et al, 2022).The role of dividend policy in mediating the relationship between profitability and firm value has also been explored. Studies like Dewi and Abundanti (2020) and Astuti and Yadnya (2019) found significant mediation by dividend policy in the Indonesia Stock Exchange, whereas Fitriani et al (2017) and Mahirun et al (2023) found no significant mediation effect, highlighting that this relationship can vary by period and geography.…”