The impact of current ratio, firm size, and financial leverage on the selection of inventory valuation method in consumer goods sector companies listed on Indonesia stock exchange

Leovina, Leovina (2019) The impact of current ratio, firm size, and financial leverage on the selection of inventory valuation method in consumer goods sector companies listed on Indonesia stock exchange. Bachelor thesis, Universitas Pelita Harapan.

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Abstract

Inventories are assets owned by a company that include products belonging to a company intended to be sold in a specific period or inventory of products that are still under work in process or raw materials inventories used in the manufacturing process. The choice of inventory valuation method is important because every decision taken has economic consequences. Conflicts of interest between economic agents can arise when a company must choose which inventory method to apply. This arises because of differences in the economic results of each inventory method refers to bonus plan theory, political cost theory, and debt covenant theory. The selection of inventory valuation method in Indonesia refers to the Statement of the Accounting Standards (PSAK) No. 14 which give the freedom for companies to use one of the alternative inventory methods, namely First-In-First-Out (FIFO) and Weighted Average method. The object of this research is companies in the consumer goods sector listed on the Indonesia Stock Exchange in the period 2013 - 2017. This is a quantitative research by using secondary data in the form of financial statements. The sampling method used is purposive sampling method, which from 49 populations, 25 companies are sampled. The statistical analysis tool used was logistic regression with a significant level of 5% using SPSS 25.0. The results of the study through testing this hypothesis indicate that the current ratio is partially and significantly affects the selection of inventory valuation method, while firm size and financial leverage do not affect the selection of inventory valuation method partially. Simultaneously the current ratio, company size, and financial leverage do not affect the selection of inventory valuation method.

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