The Effect of Capital Structure and Company Growth on Intrinsic Value with Profitability as an Intervening Variable in Mining Sector Companies on the Indonesia Stock Exchange
Introduction
The intrinsic value of a company is a crucial factor in making investment decisions, as it represents the present value of the expected net cash flow. In the context of the mining sector, understanding the dynamics between capital structure, company growth, profitability, and intrinsic value is essential for investors and company management alike. This article discusses the findings of a study that examined the effect of capital structure and company growth on intrinsic value, with profitability as an intervening variable, in mining sector companies listed on the Indonesia Stock Exchange (IDX) during the 2013 to 2015 period.
Effect of Capital Structure on Profitability
The capital structure of a company refers to the composition of debt and equity owned by the company. A well-structured capital structure is essential for a company's financial health and ability to generate profits. However, the results of this study showed that the capital structure has a positive but not significant influence on profitability. This indicates that changes in the capital structure, such as taking additional debt, do not always have a direct impact on the company's ability to generate profits. This may be caused by operational efficiency, which is more influential on profitability compared to the composition of capital itself.
Company Growth and Profitability
Unlike the capital structure, company growth shows positive and significant effects on profitability. This confirms that companies that experience growth, both in terms of sales and market expansion, tend to be able to increase profits. This growth can be generated from increasing market demand, product innovation, or efficiency in operations that support higher income. The study found that companies that experienced growth during the 2013 to 2015 period were more likely to increase their profits, indicating a positive relationship between growth and profitability.
The Relationship between Profitability and Company Intrinsic Value
This study also found that profitability and capital structure have a positive and significant effect on the intrinsic value of the company. When profitability increases, the intrinsic value of the company calculated from the free cash flow also increases, thus attracting the attention of investors. However, in this study, profitability cannot mediate the relationship between capital structure and the intrinsic value of the company. This shows that even though there is a relationship between the two, profitability does not act as a bridge in explaining the impact of the capital structure on intrinsic values.
Company Growth and Intrinsic Value
On the other hand, company growth shows a negative and insignificant effect on the company's intrinsic value. This finding raises further questions about other factors that can affect intrinsic values, may be caused by costs associated with expansion that is not paid by increased free cash flow. The study suggests that while growth may lead to increased profits, it may not necessarily lead to an increase in intrinsic value.
Profitability as an Intervening Variable
In the path analysis carried out, profitability is proven to be able to mediate the relationship between company growth and intrinsic value. This means that growth that increases profitability can lead to an increase in intrinsic value, creating a positive cycle for companies in attracting investors. This finding highlights the importance of profitability as an intervening variable in the relationship between company growth and intrinsic value.
Conclusion
Overall, this research provides valuable insight into the dynamics between capital structure, company growth, profitability, and intrinsic value. These findings can be used by company management for better decision-making strategies and by investors to assess the potential for investment in the mining sector in Indonesia. Understanding this relationship is important to improve the competitive position and market value of the company. The study suggests that companies should focus on increasing profitability through operational efficiency and growth, rather than relying solely on capital structure.
Recommendations
Based on the findings of this study, the following recommendations are made:
Company Management : Focus on increasing profitability through operational efficiency and growth, rather than relying solely on capital structure.Investors : Assess the potential for investment in the mining sector in Indonesia by considering the dynamics between capital structure, company growth, profitability, and intrinsic value.Future Research : Conduct further research on the relationship between capital structure, company growth, profitability, and intrinsic value in other industries and markets.
Limitations
This study has several limitations, including:
Sample Size : The study was limited to 32 companies listed on the IDX during the 2013 to 2015 period.Time Period : The study was limited to a three-year period, which may not be representative of the long-term dynamics between capital structure, company growth, profitability, and intrinsic value.Industry : The study was limited to the mining sector, which may not be representative of other industries.
Future Research Directions
Future research should aim to:
Expand the Sample Size : Conduct a larger-scale study to include more companies and industries.Increase the Time Period : Conduct a longer-term study to examine the dynamics between capital structure, company growth, profitability, and intrinsic value over a longer period.Examine Other Industries : Conduct a study on other industries to examine the dynamics between capital structure, company growth, profitability, and intrinsic value in different contexts.Frequently Asked Questions (FAQs) about the Effect of Capital Structure and Company Growth on Intrinsic Value with Profitability as an Intervening Variable in Mining Sector Companies on the Indonesia Stock Exchange
Q: What is the intrinsic value of a company?
A: The intrinsic value of a company is the present value of the expected net cash flow that is expected. It is a crucial factor in making investment decisions, as it represents the true value of the company.
Q: What is the capital structure of a company?
A: The capital structure of a company refers to the composition of debt and equity owned by the company. A well-structured capital structure is essential for a company's financial health and ability to generate profits.
Q: How does capital structure affect profitability?
A: The study found that capital structure has a positive but not significant influence on profitability. This indicates that changes in the capital structure, such as taking additional debt, do not always have a direct impact on the company's ability to generate profits.
Q: How does company growth affect profitability?
A: The study found that company growth shows positive and significant effects on profitability. This confirms that companies that experience growth, both in terms of sales and market expansion, tend to be able to increase profits.
Q: How does profitability affect intrinsic value?
A: The study found that profitability and capital structure have a positive and significant effect on the intrinsic value of the company. When profitability increases, the intrinsic value of the company calculated from the free cash flow also increases, thus attracting the attention of investors.
Q: Can profitability mediate the relationship between capital structure and intrinsic value?
A: No, the study found that profitability cannot mediate the relationship between capital structure and the intrinsic value of the company. This shows that even though there is a relationship between the two, profitability does not act as a bridge in explaining the impact of the capital structure on intrinsic values.
Q: How does company growth affect intrinsic value?
A: The study found that company growth shows a negative and insignificant effect on the company's intrinsic value. This finding raises further questions about other factors that can affect intrinsic values, may be caused by costs associated with expansion that is not paid by increased free cash flow.
Q: What is the role of profitability as an intervening variable?
A: The study found that profitability is proven to be able to mediate the relationship between company growth and intrinsic value. This means that growth that increases profitability can lead to an increase in intrinsic value, creating a positive cycle for companies in attracting investors.
Q: What are the implications of this study for company management and investors?
A: The study provides valuable insight into the dynamics between capital structure, company growth, profitability, and intrinsic value. These findings can be used by company management for better decision-making strategies and by investors to assess the potential for investment in the mining sector in Indonesia.
Q: What are the limitations of this study?
A: The study has several limitations, including a small sample size, a limited time period, and a focus on the mining sector.
Q: What are the future research directions?
A: Future research should aim to expand the sample size, increase the time period, and examine other industries to examine the dynamics between capital structure, company growth, profitability, and intrinsic value in different contexts.
Q: What are the practical implications of this study for company management and investors?
A: The study suggests that companies should focus on increasing profitability through operational efficiency and growth, rather than relying solely on capital structure. Investors should assess the potential for investment in the mining sector in Indonesia by considering the dynamics between capital structure, company growth, profitability, and intrinsic value.