The Influence of Operating Cash Flow, Company Size, and Debt-to-Equity Ratio on Net Profit of Financial Companies Listed on the Indonesia Stock Exchange

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FORMOSA NEWS - Medan - Asset Size Drives Profits for Indonesian Financial Firms, Study Reveals. In a study published in early 2026, financial researcher Louis Yosen Primsa Tarigan from Universitas Pelita Harapan analyzed the key drivers of net profit among financial companies listed on the Indonesia Stock Exchange (IDX). Investigating financial performance data spanning from 2021 through 2025, the study evaluates how operating cash flow, firm size, and leverage influence bottom-line earnings. Understanding these relationships is critical for corporate decision-makers, regulators, and investors who seek to navigate the Indonesian financial sector effectively.

Background and Context

Financial institutions play a vital role in national economies by channeling capital from surplus entities to borrowing parties. To maintain public trust and operational resilience across Indonesia's expansive geography, these institutions must balance operational liquidity, scale, and capital structure. While corporate leaders often rely on operating cash flow and leverage to steer profitability, macroeconomic shifts and regulatory frameworks—such as capital structure guidelines under Ministry of Finance Regulation (PMK) 169/PMK.010/2015—shape how financial firms manage debt and assets. This empirical inquiry clarifies which internal balance sheet factors truly govern profitability within the Indonesian financial market.

Research Methodology
The study employed a quantitative research design utilizing secondary financial data gathered primarily from the Refinitiv Eikon database, alongside corporate annual reports. Out of 107 financial companies listed on the IDX, a final sample of 37 firm-year observations spanning 2021 to 2025 met all predefined criteria, including consistent financial reporting, natural logarithm conversion requirements, and data normality tests. To evaluate the relationships between variables, Tarigan performed multiple linear regression analysis using SPSS version 25. The analytical framework evaluated three independent variables against net profit (the dependent variable):

• Operating Cash Flow ($X_1$): Logarithmic transform of net cash generated from core operational activities.
  
• Company Size ($X_2$): Measured as the natural logarithm of total assets.
  
• Debt-to-Equity Ratio ($X_3$): Total liabilities divided by total equity, serving as a measure of financial leverage.
  

Key Findings
The statistical evaluation yielded clear outcomes regarding partial and simultaneous impacts on company net profit:

• Company Size Has a Direct Positive Impact: Company size ($X_2$) proved to be the single significant partial predictor of net profit, yielding a regression coefficient ($\beta$) of 0.844 and a $t$-statistic of 6.566 ($p = 0.000$). Larger asset bases allow financial firms to expand their geographic reach, access extensive customer segments, and achieve economies of scale.
  
• Operating Cash Flow Shows No Partial Significance: Operating cash flow ($X_1$) did not exert a statistically significant partial effect on net profit ($\beta = -0.023$, $t = -0.165$, $p = 0.870$). This outcome stems from accrual accounting methods, where revenue and expense recognition timing differs from actual cash inflows and outflows.
  
• Debt-to-Equity Ratio Lacks Partial Significance: Financial leverage ($X_3$) showed no significant partial impact on net profit ($\beta = -0.292$, $t = -1.255$, $p = 0.218$). Financial firms sample-wide maintained conservative debt ratios (averaging 0.46, with a maximum of 2.02), remaining well below the statutory limit of 4.0 set by PMK 169/PMK.010/2015.
  
• Strong Combined Predictive Power: Simultaneously, all three independent variables significantly impacted net profit ($F = 47.882$, $p = 0.000$). The adjusted coefficient of determination ($R^2$) reached 0.796, indicating that 79.6% of the variance in net profit across sampled IDX financial companies is explained by operating cash flow, firm size, and debt-to-equity ratio combined.
  

Industry and Policy Implications
These findings provide actionable insights for financial managers, market analysts, and policy architects:

• Strategic Growth and Asset Scaling: For financial institutions operating in Indonesia, expanding total asset scale serves as a direct driver of earnings growth. Management teams should focus on strategic asset accumulation and geographic reach to capture broader market segments.
  
• Prudent Capital Structure Management: Because financial companies operate under conservative borrowing policies and strict regulatory oversight, increasing debt does not automatically drive bottom-line gains. Financial managers must prioritize asset quality over excessive debt financing.
  
• Holistic Analytical Approaches: Market analysts and investors must evaluate corporate balance sheets holistically. While cash flow or debt ratios alone fail to predict earnings in isolation, assessing scale alongside liquidity and leverage offers an accurate picture of financial health.
  

Author Profile
Louis Yosen Primsa Tarigan. Faculty Member / Lecturer. Universitas Pelita Harapan, Indonesia. Field of Expertise: Financial Accounting, Corporate Finance, and Financial Statement Analysis

Source
Louis Yosen Primsa Tarigan. The Influence of Operating Cash Flow, Company Size, and Debt-to-Equity Ratio on Net Profit of Financial Companies Listed on the Indonesia Stock Exchange. Jurnal Manajemen Bisnis, Akuntansi dan Keuangan (JAMBAK). Vol. 5, No. 1, Halaman 137–152
DOI : https://doi.org/10.55927/jambak.v5i1.15
URL: https://journaljambak.my.id/index.php/jambak