| Summary: | Financial ratio serves to identify the strength and weakness of the finance of
a company. Financial ratio allows investors to assess the financial state and
operational outcome of the company at present and in the past, as well as serves as
a guideline for the investors in making decisions about the investments. The
information of financial ratio with regards to the investors� interest is in the form
of profit information. Profit information is not merely inferred from the profit
itself but also from the financial ratio that related with the profit that it may
provide prediction of the profit in the future. In addition, as a dependent variable
in this research, earning changes use net profit change per future share.
In this research, the sample consists of as many as 58 companies during a
five-year period for observation (2005-2009). The sample is manufacturing
companies that fulfill several criteria of sample selection by using the purposive
sampling method. The objective of this research is the empirical evidence on the
influence of financial ratios in predicting earning changes in manufacturing
companies. The result of this research shows that there are seven variables that are
able to predict earning changes significantly, that is, Current Ratio (CR), Gross
Profit Margin (GPM), Operating Profit Margin (OPM), Return on Equity (ROE),
Ratio Inventory Turn Over (ITO), Basic Earning Power (BEP), and Debt Ratio
(DR). Three variables were proved not able to predict earning changes
significantly, that is, Net Income to Sales (NIS), Total Asset Turn Over (TATO),
and Sales to Current Liabilities (SCL). Current Ratio (CR), Gross Profit Margin
(GPM), Operating Profit Margin (OPM), Net Income to Sales (NIS), Return on
Equity (ROE), Ratio Inventory Turn Over (ITO), Total Asset Turn Over (TATO),
Sales to Current Liabilities (SCL), Basic Earning Power (BEP), and Debt Ratio
(DR) simultaneously and significantly affect profit change. The influence of those
ten variables to profit change was as much as 19.5%.
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