Financial Ratios and Earnings Growth: Evidence from Indonesia's Consumer Goods Manufacturing Industry

Abstract

This study aims to examine the effects of profitability, liquidity, and dividend policy on earnings growth in manufacturing companies within the consumer goods industry listed on the Indonesia Stock Exchange during the 2020–2022 period. A quantitative explanatory research design was employed using secondary data obtained from the companies' annual financial statements. The sample consisted of 12 companies (36 firm-year observations) selected through purposive sampling. Data were analyzed using multiple linear regression with IBM SPSS. The findings reveal that profitability, liquidity, and dividend policy do not have a statistically significant effect on earnings growth, either individually or simultaneously. These results indicate that earnings growth cannot be adequately explained solely by conventional financial ratios but is also influenced by other factors, including operational efficiency, investment strategies, macroeconomic conditions, and industry-specific characteristics. The findings imply that managers and investors should adopt a more comprehensive approach by considering both financial and non-financial indicators when evaluating firms' future earnings growth. The novelty of this study lies in examining the relationship between profitability, liquidity, dividend policy, and earnings growth during the post-COVID-19 economic recovery period, providing new empirical evidence on the limited explanatory power of traditional financial ratios in predicting earnings growth within Indonesia's consumer goods manufacturing sector.