The influence of current ratio and net profit margin on profit growth in the automotive industry : an empirical study from 2018 to 2022

Abstract

To maintain competitiveness and ensure long-term sustainability in the automotive sector, understanding the determinants of profit growth is crucial. This study empirically examines the impact of the Current Ratio (CR) and Net Profit Margin (NPM) on profit growth from 2018 to 2022, focusing on ten automotive companies listed on the Indonesia Stock Exchange. A quantitative methodology, utilizing panel data regression analysis and specifically the Fixed Effects Model (FEM), was employed to uncover significant insights. It was found that the CR positively influences profit growth, whereas the NPM exhibits a negative effect. These empirical findings offer valuable insights into financial management practices within the automotive industry. By understanding the impact of key financial metrics on profitability, investors, managers, and policymakers are better equipped to make informed decisions to optimize financial strategies for profit growth. This study contributes to the existing literature by addressing the relationship between the CR and NPM within the context of the automotive sector, an area where comprehensive analysis has been lacking. These insights are vital for informing strategic financial decisions and supporting the long-term health of the industry in a fiercely competitive global market.