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Aug 24, 2024
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Abstract
This research was conducted to determine and assess the financial leverage and the enterprise value of manufacturing industries in the Municipality of Bulan Sorsogon, Philippines and to establish the relationship of these two variables. This also determines the factors that influence the financial leverage decisions of the business owners. This study used mixed design. A total of 92 registered manufacturing business owners operating in the said Municipality were the primary respondents of the study. Vertical analyses and linear regression analyses were utilized.
This study concludes that the manufacturing business enterprises in the Municipality of Bulan Sorsogon have significant amount of debt relative to its equity as manifested by its financial leverage. The respondents were likewise found to have a low enterprise value, with exception to company’s book value, which suggests a lower market perception of the company's worth, potentially reflecting weaker financial performance or growth prospects. Lack of personal capital, financial risk tolerance and cost of debt, cash flow stability, growth opportunities and regulatory and legal considerations were the identified factors that influence the financial leverage of the manufacturing business owners. From the results, the researcher highly recommends that manufacturing business owners may consider optimizing their capital structure to ensure an appropriate balance between debt and equity.
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
How to Cite
Bongalonta, M. B., & Bongalonta, M. M. (2024). The Enterprise Value and The Financial Leverage of Manufacturing Industries in the Municipality of Bulan Sorsogon. International Journal of Multidisciplinary: Applied Business and Education Research, 5(8), 3301-3321. https://doi.org/10.11594/ijmaber.05.08.27
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Efinancemanagement. (2022, August 23). Retrieved from https://efinancemanagement.com: https://efinancemanagement.com/investment-decisions/value-of-a-firm
Faculty of Administrative Sciences Brawijaya University. Vol 25 No.2 August 2015. Rudianto. Information Management Accounting for Strategic Decision Making. (Erlangga-Jakarta, 2013).
Grable, J. E., & Lytton, R. H. (1999). Financial risk tolerance revisited: The development of a risk assessment instrument. Financial Services Review, 8(3), 163-181.
Gunadi, G., & Kesuma, K. (2015). Pengaruh ROA, DER, EPS Terhadap Return Saham Perusahaan Food and Beverage BEI. E-Jurnal Manajemen Universitas Udayana, 4(6), 250234.
Hantono.2015. Influence of Current Ratio and Debt to Equity Ratio on Profitability in Metal and Similar Manufacturing Sector Companies Listed on the Indonesia Stock Exchange Period 20092013. Journal of Wira Ekonomi, Prima Indonesia Accounting Study Program. Vol.5 No.01, April 2015.
Harahap, Sofyan. Critical Analysis of Financial Statements. Twelfth Printing (PT Grafindo PersadaJakarta, 2013).
Hargrave, M. (2022, June 14). investopedia.com. Retrieved from https://www.google.com: https://www.investopedia.com/terms/r/returnonassets.asp
Harjito, A., & Martono. (2013). Manajemen Keuangan. Yogyakarta: Ekonisia.
Hayes, A. (2022, July 11). investopedia. Retrieved from investopedia.com: https://www.investopedia.com/terms/l/leverage.asp
Https://personalfinancelab.com/. (2023, October 17). Retrieved from www.google.com: https://personalfinancelab.com/advanced/asset-to-equity-ratio/#:~:text=DefinitionThe%20Asset%20to%20Equity%20Ratio,(aka%2C%20owner's%20equity)
Ibsindia.org. (2022, August 23). Retrieved from https://ebooks.ibsindia.org: https://ebooks.ibsindia.org/afm/chapter/how-can-financial-leverage-affect-the-value/
Jensen, Michael C., William Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Cost, and Capital Structure. Journal of Finance Economics, 3: 305-360. Kasmir. (2016). Analisis Laporan Keuangan. Jakarta: Raja Grafindo Persada.
Kurniawan, A. (2021). Analysis of the Effect on Return on Assets, Debt to Equity Ratio and Total Assets Turnover on Share Return. Journal of Industrial Engineering and Management Research, 64.
Kurniawan. (2018). e-journal.uajy.ac. Retrieved from www.google.com: https://e-
Fernando, J. (2023, May 24). investopedia.com. Retrieved from www.google.com: https://www.investopedia.com/terms/r/returnonequity.asp
Lee, S., & Park, H. (2020). The Impact of Financial Leverage on Enterprise Value during Economic Downturns. Journal of Financial Research, 37(4), 48-65.
Lev, B. (2001). Intangibles: Management, measurement, and reporting. Brookings Institution Press.
Lev, B., & Thiagarajan, S. R. (1993). Fundamental information analysis. Journal of Accounting Research, 31(2), 190-215. 2.
Maverick, J. (2022, August 25). investopedia. Retrieved from investopedia.com: https://www.investopedia.com/ask/answers/040615/what-difference-between-operating-leverage-and-financial-leverage.asp#:~:text=Operating%20leverage%20is%20an%20indication,the%20operations%20of%20a%20company.
Michaelas, Nicos. Francis Chittenden and Panikkos Poutziouris. 1988. A Model of Capital Structure Decision Making in Small Firms . Journal of Small Business and Enterprise Development. Vol. 5. No. 3. Pp. 246-260.
Noghondari, A. T. (2022). The Effect of Company’s Interest Coverage Ratio on the Structural and Reduced-Form Models in Predicting Credit Derivatives Price. Iranian Journal of Management Studies, 169-188.
Openstax.org. (2023, October 17). Retrieved from www.google.com: https://openstax.org/books/principles-finance/pages/5-6-operating-cash-flow-and-free-cash-flow-to-the-firm-fcff
Penman, S. H., & Zhang, X. J. (2002). Accounting conservatism, the quality of earnings, and stock returns. The Accounting Review, 77(Supplement_1), 237-264.
Nurcahayani, R., & Daljono. (2014). Analisis Pengaruh Struktur Modal Terhadap Profitabilitas (Studi Pada Perusahaan Manufaktur Yang Terdaftar Di Bursa Efek Indonesia Pada Tahun 2010-2012). Diponegoro Journal of Accounting, 3(4), 123–132.
Riahi-Belkaoui, A., & Picur, R. D. (2002). The relationship between equity market values and banks’ earnings and book values. The International Journal of Accounting, 37(1), 87-104. 4.
Rizki, et al. 2015. The Influence of Current Ratio, Total Asset Turnover, and Debt to Equity Ratio Against Return on Equity in Property and Real Estate Sub-Sector Companies listed on the Indonesia Stock Exchange for the 2011-2014 Period. Journal of Business Administration.
Robinson, T. R., Henry, E., Pirie, W. L., and Broihahn, M. A. (2015). International financial statement analysis. John Wiley and Sons.
Ross, S. (2021, June 12). investopedia.com. Retrieved from www.google.com: https://www.investopedia.com/ask/answers/010815/what-difference-between-book-value-and-carrying-value.asp
Smith, J., & Johnson, R. (2018). The Impact of Financial Leverage on Firm Value: Evidence from Emerging Economies. Journal of Finance and Economics, 25(3), 112-128.
Titman, Sheridan, & Robert Wessels. 1988. The Determinant of Capital Structure Choice . Journal of Finance 43, 1-9.
Wallstreetprep.com. (2023, October 17). Retrieved from www.google.com: https://www.wallstreetprep.com/knowledge/book-value-of-equity/