THE INFLUENCE OF PROFITABILITY, LIQUIDITY, AND SOLVENCY ON

DIVIDEND POLICY
(An Empirical Study on Manufacturing Companies in the Consumer Goods Sector
Listed on the Indonesia Stock Exchange for the Period 2016-2020)

By :
Edwin Gunawan
Postgraduate School, Master of Accounting Study Program
Widyatama University, Phh. Mustofa street No. 59 Bandung
Email: dwin.gunawan@yahoo.com

ABSTRACT
This research aims to examine the influence of profitability, liquidity, and solvency on dividend
policy in manufacturing companies in the consumer goods sector listed on the Indonesia Stock
Exchange for the period 2016-2020. The research methodology employed is descriptive-
associative, which aims to test whether there is an influence between independent variables
and the dependent variable and explain the direction of the relationship between these
variables. The research data consist of financial ratios obtained from the financial statements
of manufacturing companies, sourced from the Indonesian Capital Market Directory and the
official websites of each company. Purposive sampling was used as the sampling technique,
resulting in 19 sample financial ratios from a population of 36 financial ratio data for 5 years
of the research period. Data analysis methods used include descriptive statistics, regression
analysis, correlation coefficient analysis, determination coefficient analysis, and t-test
statistics. Based on the partial hypothesis testing results, it can be concluded that return on
assets and current ratio significantly influence the dividend payout ratio. However, the debt-
to-asset ratio does not significantly affect the dividend payout ratio.
Keywords: Profitability, Liquidity, Solvency, Dividend Policy

I. INTRODUCTION
Issuing shares is one of the company's choices when deciding to carry out funding
activities. On the other hand, shares are an investment instrument that many investors choose
because shares are able to provide attractive levels of profit, however, investment activities are
activities that are faced with various kinds of risks and uncertainties that are often difficult for
investors to predict. To reduce this risk, investors need various kinds of information, both
company performance information presented in financial reports and other relevant
information such as the political and economic conditions of a country.
The reason for choosing a Consumer Goods Manufacturing Company listed on the
Indonesia Stock Exchange is because this company presents an annual financial report which
can be obtained via the website www.idx.co.id as research data. The opinion on the financial
statements is also reasonable without exception, so that stakeholders will not make mistakes in
making decisions related to financial report data. All required financial ratio data is available
in the annual report for profitability, liquidity and solvency. Manufacturing companies also
generally distribute cash dividends to shareholders because the amount of sales revenue is very
high.
According to Kartikahadi (2012:83), to make wise economic decisions, investors need
financial reports in the context of management accountability and understanding and analyzing
the state of an entity's financial position on a certain date, evaluating the entity's ability to
generate operating profits in a certain period, as well as cash and cash equivalents within a
certain time. From the results of this evaluation, investors can find out whether the company is
able to pay dividends to investors on time.
According to Martono and Agus (2010:253), techniques that can be used to analyze
financial data for company dividend policies include using financial ratio analysis. Dividend
policy in financial ratios can take into account the proportion of distribution between payments
to investors and reinvestment in the company. The dividend payout ratio is a ratio that shows
the percentage of company profits paid to the company's ordinary shareholders in the form of
cash dividends.
According to Sutrisno (2012:274), residual dividend theory says that the profits earned
by a company in a period are actually for the welfare of shareholders. However, usually some
is distributed to shareholders as dividends and some is retained. To retain profits earned by a
company is usually because there is a profitable investment opportunity. If the profit from the
investment opportunity is equal to or greater than the required profit level, then the profit should
not be shared. Profits are distributed to shareholders if it turns out that the profits obtained from
reinvestment are smaller than the required profits. Thus the residual dividend of theory is the
remaining profit that is not reinvested.
Research conducted by Astri Fitria (2020) entitled the influence of profitability, growth
and solvency on dividend policy in banking companies for the 2016-2019 period. This research
partially shows that return on assets, growth and debt to total assets have a significant effect on
the dividend payout ratio .
Research conducted by Marcella Marta Pangalila (2019) entitled the influence of
profitability, liquidity and solvency on the dividend payout ratio in banking companies on the
Indonesia Stock Exchange for the 2010-2016 period. This research partially shows that the
capital adequacy ratio has a significant effect on the dividend payout ratio . Meanwhile, return
on assets and quick ratio do not have a significant effect.
Based on the background, the identification of research problems is as follows: (1) Does
profitability affect dividend policy? (2) Does liquidity have an effect on dividend policy ? (3)
Does solvency influence dividend policy in Consumer Goods Manufacturing Companies listed
on the Stock Exchange? The research objective is to find out whether profitability has an effect
on dividend policy, to find out whether liquidity has an effect on dividend policy and to find
out whether solvency has an effect on dividend policy.

II. LITERATURE REVIEW

Financial statements
According to Hanafi (2012), he believes that financial information describes the financial
situation and business results. Financial information is very important because it provides data
that can be used for making decisions. Many parties are concerned with financial information,
starting from investors or potential investors, budget donors or potential budget donors, to
industry management itself.

Financial Report Analysis

On the other hand, according to Harahap (2009), financial information analysis means
breaking down financial information accounts into smaller pieces of data and looking at their
relationships which are important or meaningful between one another, whether quantitative
information or non-quantitative information. The aim is to understand a deeper financial
situation which is very important in how to make the right decisions.
Financial Ratios
According to Harahap (2009), financial comparative analysis is the value obtained from
the analogy of one financial information account with another account that has relevant and
important ties. The purpose of financial comparative analysis is to understand financial
situations in more depth which is very important in making appropriate decisions for consumers
of financial information.

Profitability
According to Sartono (2010), profitability is the industry's ability to gain profits in
relation to marketing, overall assets or own capital. Profitability ratios are very important for
consumers of financial information to know because they indicate how much the industry is
capable of generating profits, and large profit ratios prove how good management is in
managing the industry.

Liquidity
According to Sutrisno (2012), liquidity is the industry's ability to pay off its obligations
which must be fulfilled quickly. The role that must be fulfilled quickly is a short-term loan,
therefore this comparison can be used to measure the level of security of short-term borrowers,
and measure whether business operations will not be hampered if this short-term role is quickly
collected.

Solvency
According to Kasmir (2015), the solvency ratio or leverage ratio is a comparison used to
measure the extent to which industrial assets are financed with loans. This means how much
weight the loan guaranteed by the industry is compared to its assets. In a big sense, it can be
said that the solvency ratio is used to measure the company's ability to pay off all its obligations,
both in the short term and in the long term if the company is dissolved (liquidated).

Dividend
Rudianto (2012), believes that dividends are part of the business profits obtained by an
industry and handed over by an industry to its shareholders in return for their willingness to
invest their assets in that industry. Sutrisno (2012), states that dividends are the portion of
profits paid by industry to its shareholders. Therefore, this dividend is part of the income
expected by shareholders.

Dividend Theory
a. Residual dividend theory or Residual dividend of theory
The profits obtained by the industry in a certain period of time are actually for the
safety of shareholders. But generally some is distributed to shareholders as dividends and some
is retained. To maintain the profits obtained by the industry generally because there are
profitable capital opportunities. If the profit from the capital opportunity is equal to or greater
than the required profit level, then the profit should not be shared. Profits are distributed to
shareholders if in fact the profit obtained from reinvestment is smaller than the required profit.
In this way, the residual dividend of theory is the remaining profit that is not reinvested.
b. Walter's dividend model or Walter's dividend model
Walter's dividend theory argues that as long as the profits obtained from reinvestment
are higher than the costs, then the reinvestment tends to increase the share price or company
value.
 c. Modigliani and Miller model dividends or Modigliani and Miller's model
Modigliani and Miller (MM) believe that basically the capital provisions regarding
dividend payments are not relevant to take into account, because they will not increase the
safety of shareholders. For MM, the increase in industrial figures is influenced by the ability to
obtain profits or earning power from industrial heritage. Therefore, industry figures are
determined by capital regulations. Meanwhile, it is determined whether the profits obtained
will be divided into cash Dividends or retained profits do not affect industry figures.

III. OBJECT AND RESEARCH METHODOLOGY

According to Sugiyono (2014), research methods are scientific methods for obtaining
information with specific objectives and benefits. With the research methodology the author
aims to collect historical data and observe carefully certain aspects that are closely related to
the research problem. The data that has been obtained will be processed, analyzed further using
the theoretical basis that has been studied, so that a picture of the object will be obtained and a
conclusion can be made regarding the problem being studied.
This research method, based on the level of explanation, is descriptive-associative
research which has a cause-and-effect (causal) relationship, meaning research that aims to test
whether there is an influence between the independent variable and the dependent variable and
explain the variables studied.
This research uses return on assets and return on equity as indicators to measure
profitability variables.
a. Return on assets
According to Sutrisno (2012), return on assets is the dimension of industry expertise
in creating profits with all the assets owned. The trick is to equate the profit before interest
weight and tax weight with total assets.
The formula used is:

Earning before interest and tax

Return on asset =
Total asset

b. Current ratio
According to Sutrisno (2012), this is a comparison that equates easy assets owned by
industry with short term loans. Easy assets here include cash, business receivables, profits,
provisions and other easy assets. On the other hand, short term loans include business loans,
money orders, bank loans, income loans and other loans that must be repaid quickly.
The formula used is:

Current assets
Current ratio =
Current liabilities

c. Debt to asset ratio

According to Kasmir (2015) Debt ratio is a loan ratio used to measure the ratio
between total loans and total assets. In other words, how much industrial assets are financed
by loans or how much industrial loans affect asset management.
The formula used is:

Total debt
Debt to asset ratio =
Total assets
 d. Dividend payout ratio
Martono and Agus (2010), stated that the dividend payout ratio is a comparison that
proves the percentage of industry profits paid to industry shareholders in the form of cash
dividends.
The formula used is:

Dividend Per Share

Dividend Payout Ratio =
Earning Per Share

IV. RESEARCH RESULTS AND DISCUSSION

a. Effect of Profitability Regarding Dividend Policy
The results of hypothesis testing show that return on assets has a significant effect on
the dividend payout ratio , this explains that changes in return on assets will have an impact on
the dividend payout ratio . This means that a high increase in profits will be accompanied by
high dividend payments to shareholders. The amount of profit earned in the current year will
influence management in determining the dividend payment policy, namely increasing or
reducing the amount of dividends paid.
Based on the financial ratio data that has been collected for the sample companies, it
can be seen that there has been an increase in the number of assets from year to year and the
increase is in line with the amount of profit earned each year. In this way, the profits obtained
will increase the number of assets that will be used as capital to operate in the following period.
Based on financial ratio data from 2017 to 2018 PT. Delta Djakarta Tbk. experienced an
increase in return on assets of 1.33%. This was accompanied by an increase in the dividend
payout ratio of 38.77%. This means that the correlation between return on assets and the
dividend payout ratio shows a positive direction.
b. The Influence of Liquidity on Dividend Policy
The results of hypothesis testing show that the current ratio has a significant effect on
the dividend payout ratio , this explains that changes to the current ratio will have an impact
on the dividend payout ratio . This means that a high amount of current assets will be
accompanied by high dividend payments to shareholders. Management's decision to distribute
profits earned as dividends to shareholders has an impact on reducing internal sources of funds
that will be used to develop the company.
Based on the financial ratio data that has been collected for sample companies, it can
be seen that there has been an increase in the amount of current assets from year to year and
the increase is in line with the amount of current debt each year. Thus, the increase in current
assets in the form of cash is used to develop the company. Based on financial ratio data from
2016 to 2017 PT. Delta Djakarta Tbk. experienced an increase in the current ratio of 103.39%.
This was accompanied by an increase in the dividend payout ratio of 17.72%. This means that
the correlation between the current ratio and the dividend payout ratio shows a positive
direction.
c. The Influence of Solvency on Dividend Policy
The results of hypothesis testing show that the debt to asset ratio has no significant
effect on the dividend payout ratio , this explains that changes to the debt to asset ratio will not
have an impact on the dividend payout ratio . This means that the higher the company's assets
financed with debt will not be accompanied by higher dividend payments to shareholders. The
company's solvency position will not influence management in determining the dividend
payment policy, namely increasing or reducing the amount of dividends paid.
Based on the financial ratio data that has been collected for sample companies, it can
be seen that there has been an increase in total assets from year to year and the increase is not
in line with the amount of debt. Thus, most of the company's assets are used to pay off its
obligations. Based on financial ratio data from 2018 to 2019 PT. Chitose International Tbk.
experienced an increase in debt to asset ratio of 4.00%. This was accompanied by a decrease
in the dividend payout ratio of 2.70%. This means that the correlation between the debt to asset
ratio and the dividend payout ratio shows a negative direction.

V. CONCLUSIONS AND SUGGESTION

CONCLUSION
1. The influence of profitability on dividend policy
Return on assets has a significant effect on the dividend payout ratio . This means that
a high increase in profits will be accompanied by high dividend payments to shareholders. This
is proven by financial ratio data for sample companies, that increasing return on assets will be
accompanied by an increase in dividend payout ratio . Management's decision to distribute
profits earned as dividends to shareholders has an impact on reducing internal sources of funds
that will be used to develop the company.
2. The influence of liquidity on dividend policy
The current ratio has a significant effect on the dividend payout ratio . This means that
the higher the company's ability to pay off short-term liabilities using all its current assets, the
higher the dividend payments to shareholders. This is proven by financial ratio data for sample
companies, that an increase in the current ratio will be accompanied by an increase in the
dividend payout ratio .
3. The influence of solvency on dividend policy
Debt to asset ratio does not have a significant effect on the dividend payout ratio . This
means that the higher the company's assets financed with debt will not be accompanied by
higher dividend payments to shareholders. This is proven by financial ratio data for sample
companies, that an increase in the debt to asset ratio will be accompanied by a decrease in the
dividend payout ratio .

SUGGESTION
a. For Company Management
The author hopes that the company management will improve its performance in
terms of profitability and liquidity. Based on the research results, it can be seen that the higher
the company's profitability and liquidity will be accompanied by higher dividend payments to
shareholders and this can increase investors' interest in investing.
b. For Investors
The author hopes that investors will prioritize their investments in companies that
perform well in terms of profitability and liquidity. Because the higher the level of profitability
and liquidity will be accompanied by higher dividend payments.
c. For Other Parties
The author hopes that other parties or future researchers will add other financial ratio
variables. Such as activity ratio and assessment ratio. This can prove how big the influence of
financial ratios is on dividend policy.
 BIBLIOGRAPHY

Book

Brigham Eugene F. & Joel F. Houston. 2001. Financial Management . Eighth Edition. Jakarta
: Erlangga.

Brigham Eugene F. & Joel F. Houston. 2006. Basics of Financial Management . Tenth Edition.
Jakarta : Erlangga.

Fahmi, Irham. 2011. Financial Report Analysis . Bandung: Alphabeta.

Ghozali, Imam. 2011. Application of Multivariate Analysis with the IBM SPSS 19 Program .
Semarang: Diponegoro University.

Ghozali, Imam. 2013. Application of Multivariate Analysis with the IBM SPSS 21 Program .
Semarang: Diponegoro University.

Hanafi, Mamduh M. 2012. Financial Management . First Edition. Yogyakarta: BPFE.

Please, Sofyan Safri. 2009. Critical Analysis of Financial Reports . Jakarta : PT. Raja Grafindo
Persada.

Indonesian Accountants Association. 2009. Financial Accounting Standards . Jakarta :

Salemba Empat.

Kartikahadi, Hans. Rosita Uli Sinaga. Merlyana Syamsul. Sylvia Veronica Siregar. 2012.
Financial Accounting Based on IFRS-Based SAK . Jakarta : Salemba Empat.

Kasmir. 2008. Financial Statement Analysis . Jakarta : Rajawali Press.

Kasmir. 2010. Financial Statement Analysis . Jakarta : Rajawali Press.

Kasmir. 2011. Financial Report Analysis . Jakarta : PT. RajaGrafindo Persada.

Kasmir. 2015. Financial Report Analysis . Jakarta : Rajawali Press.

Lukviarman, Niki. 2006. Basics of Financial Management . Padang: Andalas University Press.

Martono. & D. Agus Harjito. 2010. Financial Management . Yogyakarta : Ekonisia.

Munawir. 2010. Financial Statement Analysis . Fourth Edition. Yogyakarta : Liberty.

Priyatno, Duwi. 2012. Quick Way to Learn Data Analysis with SPSS 20 . First Edition.
Yogyakarta : ANDI.

Rudianto. 2010. Introduction to Accounting and Financial Report Preparation Techniques .

Jakarta : Erlangga.
Santoso, Singgih. 2012. SPSS Analysis in Parametric Statistics . Jakarta : PT. Elex Media
Komputindo.

Sartono, Agus. 2010. Financial Management Theory and Applications . Yogyakarta: BPFE.

Now, Uma. 2003. Research Method Of Business: A skill Building Approach . New York-USA:
John Wiley and Sons, Inc.

Now, Uma. 2014. Research Methods Of Business . Jakarta: John Wiley and Sons Inc.

Now, Uma & Bougie, Roger. 2019. Research Methods for Business : Skills-Development
Approach. Jakarta: John Wiley and Sons, Inc.

Sugiyono. 2011. Research Methods Quantitative Qualitative And R&D . Bandung: Alphabeta.

Sugiyono. 2012. Business Research Methods . Sixteenth Printing. Bandung: Alphabeta.

Sugiyono. 2014. Quantitative Qualitative Research Methods and R&D . Bandung: Alphabeta.

Sugiyono. 2019. Quantitative Qualitative Research Methods and R&D . Bandung: Alphabeta.

Sugiyono. 2022. Quantitative Research Methods . Bandung: Alphabeta.

Sutrisno. 2012. Financial Management Theory and Concepts . Yogyakarta : Ekonisia.

Sutrisno. 2017. Financial Management Theory, Concepts and Applications . Yogyakarta :

Ekonisia.

Journal

Adib, Aldian, I. (2020). The Influence of Profitability, Growth and Solvency on Dividend
Policy. Journal of Accounting Science and Research , 9 (8).
http://jurnalmahasiswa.stiesia.ac.id/index.php/jira/article/view/3627/3643

Bawamenewi, K., & Afriyeni, A. (2019). The Influence of Profitability, Leverage, and
Liquidity on Dividend Policy in Manufacturing Companies Listed on the Indonesian
Stock Exchange. Pundi Journal , 3 (1), 27–40. https://doi.org/10.31575/jp.v3i1.141

Hanum, M., Febriyanto, & Japlani, A. (2020). The influence of profitability, solvency and
liquidity ratios on dividend policy in consumer goods companies on the IDX (2016-2018
period). Journal of Management , 14 (2), 222–233.

Hwee, TS, William, W., Stephani, S., Vera, V., Supantri, D., Wynne, W., & Prasetya, D.
(2019). The Influence of Solvency Ratios, Profitability Ratios, Liquidity and Earnings
Per Share on Dividend Policy in Consumer Goods Companies Listed on the Indonesia
Stock Exchange (BEI) for the 2013-2017 Period. PLANS Journal: Management and
Business Science Research , 14 (1), 1. https://doi.org/10.24114/plans.v14i1.13322

Ihsaniah, RD, Adam, M., & * Y. (2020). The Influence of Profitability, Liquidity, Firm Size
and Solvency on Dividend Policy in Consumer Goods Industry Sector Companies Listed
 on the Indonesian Stock Exchange. Journal of Equilibrium Management and Business ,
6 (1), 60–86. https://doi.org/10.47329/jurnal_mbe.v6i1.411

Ikhsan, N.M. (2019). The Influence of Profitability, Leverage, Liquidity and Company Growth
on Dividend Policy. Thesis, Muhammadiyah University of Magelang , 2011 .

Lestari, KF, Tanuatmodjo, H., & Mayasari. (2016). The Influence of Liquidity and Profitability
on Dividend Policy in Foreign Exchange BUSN Listed on the Indonesian Stock
Exchange. Journal of Business Management Education | , 1 (2), 11–16.
https://ejournal.upi.edu/index.php/JBME/article/view/5874/3970

Madyoningrum, AW (2019). The Influence of Firm Size, Leverage and Profitability on

Dividend Policy. Journal of Business And Management , 6 (1), 45–55.
https://doi.org/10.26905/jbm.v6i1.3034

Marcelino, I. (2021). Analysis of the Influence of Profitability, Company Size, Liquidity, and
Solvency on Dividend Policy (Empirical Study of Basic Industry Sector Companies....
Proceedings: Economics and Business , 1 (1). https://jurnal.ubd.ac.id/index.php
/pros/article/view/735%0Ahttps://jurnal.ubd.ac.id/index.php/pros/article/download/735/
431

Munika, R., Hanafi, A., & Nurzali, N. (2022). The Influence of Liquidity, Solvency,
Profitability and Growth on Dividend Policy in Manufacturing Companies Listed on the
Indonesian Stock Exchange for the 2017-2020 Period . Science Tower , 16 (2), 63–76.
https://doi.org/10.31869/mi.v16i2.3231

Natsir, F., & Jamaludin. (2015). The influence of liquidity, solvency and profitability on
dividend policy in companies included in the Jakarta Islamic Index in BEI. Iqtisaduna
Journal , 1 (1), 106–124.

Ni Luh Silvia Ratna Juliantari, I Wayan Widnyana, & I Gusti Ngurah Bagus Gunadi. (2022).
The Influence of Profitability, Liquidity and Company Size on Dividend Policy in
Banking Companies Listed on the Indonesian Stock Exchange. GOLD Journal , 3 .

Noefiansyah, D., & Idayati, F. (2014). The Influence of Profitability, Firm Size, Liquidity and
Leverage on Dividend Policy in Bei. Journal of Accounting Science and Research , 3 (8),
247455.

Pangalila, MM, Ogi, I., Business, E., & Management, J. (2019). The Influence of Proftability,
Liquidity and Solvency Ratios on the Dividend Payout Ratio (Dpr) in Banking
Companies on the Indonesian Stock Exchange. EMBA Journal: Journal of Economics,
Management, Business And Accounting Research , 7 (3), 3488–3497.

Ratnasari, PSP, & Purnawati, NK (2019). The Influence of Profitability, Liquidity, Company
Growth Rate and Leverage on Dividend Policy. Udayana University Management E-
Journal , 8 (10), 6179. https://doi.org/10.24843/ejmunud.2019.v08.i10.p16

Robiyanto, R., Nafiah, I., Harijono, H., & Ingarwati, K. (2020). The Influence of Profitability
on the Value of Hospitality and Tourism Companies with Capital Structure as an
Intervening Variable. Scientific Journal of Asian Business and Economics , 14 (1), 46–
 57. https://doi.org/10.32812/jibeka.v14i1.153

Sari, NPASP, & Suryantini, NPS (2019). The Influence of Profitability, Liquidity, and Growth
Rates on Dividend Policy in Manufacturing Companies. Udayana University
Management E-Journal , 8 (7), 4559.
https://doi.org/10.24843/ejmunud.2019.v08.i07.p20

Sundari, RI (2021). Dividend Policy in Manufacturing Companies Listed on the Indonesian

Stock Exchange. Journal of Accounting and Finance Research , 17 (1), 61.
https://doi.org/10.21460/jrak.2021.171.364

Trijayanti, D., & Suprihhadi, H. (2019). The Influence of Profitability, Liquidity, and Leverage
on Dividend Policy in Banking Companies Listed on the Indonesian Stock Exchange.
Journal of Management Science and Research , 8 (3), 1–21.

Umagapi, N., & Triyonowati. (2021). The Influence of Profitability, Liquidity and Activity on
Dividend Policy in Banking Companies in Bei. Journal of Management Science and
Research , 10 (7), 1–14.

Internet

www.idx.co.id, Accessed June 2022

www.junaidichaniago.wordpress.com , Accessed July 2022

www.sahamok.com, Accessed June 2022

www.eddyelly.com, Accessed June 2022

www.mendeley.com, Accessed February 2023

www.spinner.id, Accessed July 2023