The findings are relevant for investors, company managers, and financial-reporting regulators because rising revenue is often viewed as a sign of stronger business performance. The study shows that higher sales alone may not be enough to improve profitability when companies face substantial operating costs or use their assets inefficiently.
Why Sales Growth Does Not Guarantee Higher Profit
Consumer Non-Cyclicals companies occupy an important position in Indonesia’s capital market because they produce everyday necessities whose demand tends to be relatively resistant to economic cycles. However, the sector still experienced changes in market performance during 2021–2024. The IDX Consumer Non-Cyclicals index fell 16.04% in 2021 before recording growth of 7.89% in 2022, 0.82% in 2023, and 0.98% in 2024.
The researchers used ROA to represent financial performance. ROA measures a company’s ability to generate net profit from the assets it controls.
Sales growth reflects changes in revenue from one period to another. In theory, higher sales can expand revenue and business scale. But additional revenue can be accompanied by higher production, distribution, labor, financing, or other operating costs. When costs rise faster than the benefits generated by additional sales, profitability may not improve.
The study also examined earnings management, referring to managerial discretion in financial reporting that can affect the timing or amount of reported profit. The researchers measured this factor using discretionary accruals under the Modified Jones Model.
How the Study Was Conducted
The researchers used a quantitative causal design based on panel data from Consumer Non-Cyclicals companies listed on the Indonesia Stock Exchange between 2021 and 2024.
The initial population consisted of 131 companies. After applying purposive sampling criteria, 46 companies with 184 company-year observations were selected. Seventeen observations were subsequently removed during outlier screening, leaving 167 observations for the final analysis.
The study measured:
- Financial performance: Return on Assets (ROA), calculated from net profit divided by total assets.
- Sales growth: annual change in sales compared with the previous year.
- Earnings management: discretionary accruals calculated using the Modified Jones Model.
- Firm size: the natural logarithm of total assets.
The researchers used EViews 12 to analyze the panel data and applied Moderated Regression Analysis to examine whether firm size changed the relationships between sales growth, earnings management, and financial performance. The Random Effects Model was selected as the final estimation model.
Key Findings
The analysis produced four main findings.
1. Sales growth was not significantly associated with ROA.
Sales growth had a positive coefficient of 0.014275, but its probability value was 0.2101. This means the relationship was not statistically significant in the study’s model.
The result indicates that companies can experience higher sales without necessarily achieving higher returns from their assets. The authors point to operating-cost pressures, inflation, raw-material prices, and exchange-rate changes as factors that can reduce profit margins even when sales increase.
2. Earnings management had a positive and significant relationship with ROA.
Earnings management recorded a coefficient of 0.099167 with a probability value of 0.0126. Because ROA is calculated using reported net profit, changes in discretionary accruals that increase reported profit can also affect measured ROA.
This result does not establish that earnings management improves underlying business performance. Rather, it shows that reported profitability, as measured by ROA, is statistically related to discretionary accruals in the observed companies.
3. Firm size weakened the relationship between sales growth and ROA.
The interaction between sales growth and firm size produced a coefficient of -0.004454 with a probability value of 0.0488. The study therefore classified firm size as a significant pure moderator of the sales-growth relationship.
The negative interaction indicates that the relationship between sales growth and ROA becomes weaker as company size increases. The authors explain that larger companies may have broader operating structures and higher fixed costs, allowing part of the benefit from additional sales to be absorbed by those costs.
4. Firm size did not significantly moderate the relationship between earnings management and ROA.
The interaction between earnings management and firm size had a coefficient of -0.007108 and a probability value of 0.4127. The result did not provide statistical evidence that company size changes the relationship between earnings management and financial performance.
What the Findings Mean for Businesses and Investors
For company managers, the results highlight the importance of converting additional sales into operating profit rather than focusing only on revenue expansion. Controlling production, distribution, and fixed costs can be important when seeking stronger financial performance.
For investors and financial analysts, the findings suggest that ROA and sales growth should not be examined in isolation. The quality of reported earnings and the role of accrual components can also provide important information when evaluating corporate performance.
The researchers also emphasize the relevance of financial-reporting oversight. Regulators can continue strengthening attention to discretionary estimates and accruals because these accounting components can influence reported profitability.
Insight From the Authors
The central message from Sulis Hardiyanti Afifah, Ade Ghofir, and Moch Rizal of Universitas Teknologi Muhammadiyah Jakarta is that financial performance in the Consumer Non-Cyclicals sector cannot be assessed from sales growth alone. Their analysis points to cost efficiency, asset utilization, and the quality of reported profits as additional factors that matter when interpreting ROA.
The model itself explained only 4.27% of the variation in financial performance after adjustment, indicating that many other factors outside the model may contribute to differences in ROA among the companies studied.
Authors
Sulis Hardiyanti Afifah, Ade Ghofir, and Moch Rizal are affiliated with Universitas Teknologi Muhammadiyah Jakarta, Indonesia. The article identifies Moch Rizal as the corresponding author. The source article does not provide the authors’ academic degrees or individual fields of expertise, so those details cannot be added without external documentation.
Source
URL: https://mrymultitechpublisher.my.id/index.php/ijbmp
The article was received on April 21, revised on May 23, and accepted on June 23. It is identified as a 2026 open-access article distributed under the Creative Commons Attribution 4.0 International license.
0 Komentar