FINANCIAL STATEMENT COMPARABILITY

AND SHORT-TERM LIQUIDITY REPORT OF INAI, ITMA, JKSW, JPRS, KRAS

FOR THE PERIOD OF 2011-2016

Arranged by:

Eigha Aprilia S 16312086

UNIVERSITAS ISLAM INDONESIA

ACCOUNTING

2019
FINANCIAL STATEMENT COMPARABILITY REPORT

OF INAI, ITMA, JKSW, JPRS AND KRAS

FOR THE PERIOD OF 2011-2016

 I. The Goal ofAnalysis
Common size analysis, which is consist of horizontal and vertical analysis,
represents a way to assess the company's overall progress, growth, and financial health.
The horizontal analysis is the comparison of historical financial information over a
series of reporting periods, or of the ratios derived from this financial information.The
intent is to see if any numbers are unusually high or low in comparison to the
information for bracketing periods, which may then trigger a detailed investigation
of the reason for the difference. Meanwhile, the vertical analysis is the proportional
analysis of a financial statement where each line item on a financial statement is
listed as a percentage of another item. This analysis is useful for timeline analysis, to
see relative changes in accounts over time, such as on a comparative basis over a five-
year period. The purpose of this report is to presents a common size analysis of five
companies from Basic Industry and Chemicals specifically Metal and Allied Products.
The five companies are PT Indal Alumunium Industry Tbk (INAI), PT Sumber Energi
Andalan Tbk (ITMA), PT Jakarta Kyoe Steel Works, Tbk (JKSW), PT Jaya Pari Steek
Tbk (JPRS) and PT Krakatau Steel (KRAS). Data are presented in theappendix.

II. Theory and Calculation of Common Size FinancialStatement

1. Vertical CommonSize
A vertical common size financial statement reports each of financial statement
account as a percentage of that statement’s largest account balance. A common
size income statement presents each account as a percentage of revenues while a
common size of statement of financial position present each account as a
percentage of assets. Common size income statement can be calculated by
dividing every reported line item on the income statement by that period’s
revenue and for the common size balance sheet, the denominator will be total
asset instead ofrevenue.

2. Horizontal CommonSize
Horizontal common size financial statement measure account changes over time.
One way to measure these changes is to establish a base period for every account
 equal to 100 percent. When setting the base year, accounts can either be anchored
to the earliest period examined or rolled forward to the period preceding the year
of the interest.

3. Compound Annual GrowthRate

The compound annual growth rate is an analytical technique measures an
account’s average rate of change over a specified time period. The following
formula is used to calculate compound annual growth rate.

1
(# 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠)
𝐸𝑛𝑑𝑖𝑛𝑔 𝑣𝑎𝑙𝑢𝑒
𝐶𝐴𝐺𝑅 = ( ) −1
𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑣𝑎𝑙𝑢𝑒

4. MovingAverages
Moving average is a mathematical result that is calculated by averaging a number
of past data points. It condenses three, five, or seven years vertical common size
statements into an average for that period of time. This common sizing techniques
captures more than one period data but fewer than the complete data set. The way
to measure the moving average is by calculating the average of particular account
and divided by the number of years chosen.

III. Vertical and Horizontal Common Size Analysis of Profit and Loss Statement
1. PT Indal Alumunium Industry Tbk(INAI)
a. VerticalAnalysis
There is the uncommon decrease of INAI’s net income in 2013 compared
with the previous years. The main cause of this decline in net income is loss on
foreign exchange. In year 2012, the company’s loss on foreign exchange was -
1.76% but then in 2013 it spikes to -4.54% of sales. In rupiah, net income
declined by Rp 18,135,947,812 (Rp 23,155,488,543 to Rp 5,019,540,371). That’s
driving a significant decrease in the net income. This change could be driven by
higher spending on foreign trade than its earning. In other words, the company
requiresmoreforeigncurrencythanitreceivesthroughsalesofexports,andit
 supplies more of its own currency than foreigners demand for its products. The
excess demand for foreign currency lowers the country's exchange rate.
b. HorizontalAnalysis
In the horizontal analysis, the sales in INAI had increased up to 2015 and
in 2016 the decrease was not as high compare to the previous years. The highest
sales were in 2015, which was 149.09% of the previous year or Rp
1,384,675,922,166 in the number. However, the lowest sales were in 2011, which
was only 4.82% of the previous years or Rp 555,886,728,181 in the number.
Overall, in the last six years, the sales in INAI gradually increase up to 2015 and
slightly decreased in 2016.

2. PT Sumber Energi Andalan Tbk(ITMA)

a. VerticalAnalysis
Based on the data, ITMA has fluctuative revenue year by year and because
of PT Sumber Energi Andalan did not produce any goods; therefore the
companies don’t have any cost of goods sold. That's implies to the gross profit
account which have similar percentage with the revenue. From the base year,
2011 until 2012, ITMA have positive progress with increases of their revenue
almost 200%. But for the next two year, ITMA bears loss in revenue account.
Meanwhile for the net income, the number is also fluctuated. The huge decreases
of net income is happen on the year 2012 which is decreases up to -7441%. These
losses occur because influenced by the deferred tax of year 2012 which have a
huge amount loss up to 1301%.
b. HorizontalAnalysis
For the interest income, it shows positive trend which is increase year by
year and reach maximum point in year 2015, which raise interest income up to
53861%. Then for the net comprehensive income, ITMA had positive trend also.
From year 2011 until 2016, the company has maximum point of net
comprehensive income in year 2015 with amount of 18186%. It happens because
in that year, ITMA has highest interest income 54% and lowest general and
administrative expense rather than other year periods.
3. PT Jakarta Kyoe Steel Works, Tbk(JKSW)
a. VerticalAnalysis
For the last six years, it can be seen that the company’s percentage of
income loss is mostly a negative amount of sales. In 2011, the loss was -1.80% of
sales, then throughout the years the amount decreases even more significant up
until 2015. The analysis showed JKSW highest negative amount was in 2012
which was -19.09% of sales, lower by 17.29% compare to the previous year. Even
though the company’s increases its operating expenses, the decrease in the gross
profit is caused by the increase in cost of goods sold. However, in 2016, the
company’s loss was reduced to -1.13% of sales even though the percentage of
operating expenses was lower. Therefore, it is assumed that the reason of the loss
is driven by higher expenses in the production process.
b. HorizontalAnalysis
In the horizontal analysis, the percentage of income loss fluctuates over
time. The biggest income loss can be seen in the year of 2015. The loss increased
up to 804.75% compare to previous years. However, the lowest income loss was
in 2016, which was only 13.19%. Therefore, there is an unusual high difference of
income loss in the year of 2015 and 2016. Overall, in the last six years, the
income in JKSW had declined significantly up to 2015 and in 2016 the decrease
was not as high compare to the previousyears.

4. PT Jaya Pari Steel Tbk(JPRS)

a. VerticalAnalysis
The company's comprehensive income is mostly decreasing every year
and started to experienced loss in 2014. In 2016, the percentage of total profit is
the lowest compared to the prior year. Even though the company has positive
gross profit, but the operating expenses were quite high. It is caused by the high
amount of selling expenses which is -3.5% and general and administrative
expenses which is 13.7% from sales. The company also had a negative percentage
ofchangesinforeignexchangeratesforthefirsttimein6yearswhichalso
 decreasing the operating income. Furthermore, the company also experience loss
on other comprehensive income of -4.1%. This loss is also the highest in six
years. Additionally, the company's comprehensive income for year 2016 is the
lowest.
b. HorizontalAnalysis
In the horizontal analysis, the total income loss from operating activities
percentage fluctuates from 2012 to 2016 based on each year comparison with year
2011. The biggest income loss happened in the year 2015. The loss increased for
about 40.62% from the previous year. It can be indicated from the decreasing of
percentage of total gross profit which is very far from the management’s
expectation based on the initial year. Not only the total income loss, but also the
total comprehensive income experienced the same amount of decrease in 2015.
Therefore, according to the table, the company did not satisfy the performance
standard from 2012 to 2016 if it is counted based on the initial year 2011.

5. PT Krakatau Steel(KRAS)
a. VerticalAnalysis
Vertical analysis presents the comparison of different accounts in the
financial statements. From the vertical analysis, it is shown that KRAS faced loss
in its Net Income after 2011 until 2016 because the cost of revenues leapt to it
sales more than 90%, even 102.76% of 2015 sales (equal to $1,358,255). It means
the company incurred high expenses in production process, meanwhile other
expenses (e.g. General and Administrative Expenses and Operating Expenses) do
not cost as much as the cost of revenues (e.g. cost of raw materials, tax,
depreciation expenses, freight expenses, and labor costs. Hence, if the company is
operating at loss, it needs to reduce its expenses and increase sales. For example,
by selling the fixed assets that is no longer used and develop a marketing strategy
to have more customers.
b. HorizontalAnalysis
Horizontal analysis presents comparison of ratios in different periods or
financial years. Firstly, the number that can be considered is the changes in profit
 or loss of the year. PT Krakatau Steel (KRAS) Net Income declined dramatically
in 2011 to 2012 and it stayed in negative amount until 2016. This may be caused
by the declining Net Revenues (or sales) from 2011 to 2016, while the Cost
incurred to generate sales was not far from the amount of generated revenues in
the same particular year. Compared to the other financial years, the greatest loss
was in 2015, which declined by 315.75% (loss amounted to $175,177) from the
2011 Net Income that is $2,032,852. This could happen since the company also
bear the gross loss by 123.04% (equal to $121,692) and inccured high operating
expenses, which is 173.95% (equal to $13,116), in 2015. Further, this could mean
that compared to other years, the company’s marketing activities in 2015 grew
exponentially and there might be several assets being repaired, but there is no
significant progress in the amount of sales in 2016 despite of the company’s
operating activities. Thus, KRAS should verify whether the operating activities,
such as marketing, rent, payroll, repair and maintenance, have been performed
effectively and efficiently in order to be improved.

IV. Vertical and Horizontal Common Size Analysis of Statement of FinancialPosition

1. PT Indal Alumunium Industry Tbk(INAI)
a. VerticalAnalysis
The vertical analysis showed that the current assets and current liabilities
had a positive increase throughout the years. Although its highest increase was in
2016, the cash account had its significant increase in 2015 which was up to
7.66%. In addition to its increase, the inventory also relatively dropped.
Therefore, it can be interpreted that the increase in cash might be because the
company was able to sell their inventory outside of the firm. However, the
account receivables during the year also went upsharply.
b. HorizontalAnalysis
Over the last six years, the current assets of INAI had risen gradually in
accordance with its current liabilities. The highest increase of current assets was
in 2016 which increased up to 153.93% and 201.15% for its current liabilities.
The biggest increase happened from year 2012 through 2013. During thoseyears,
 the increase was almost 30% (11.60% to 41.59%). In addition, the highest
increase of cash was in 2015 which increased up to 2,813.52%. The increase is
considered unusual since its account receivable also had a significantincrease.

2. PT Sumber Energi Andalan Tbk(ITMA)

c. VerticalAnalysis
In the assets section of PT Sumber Energi Andalan (ITMA) balance sheet,
the non-current assets contributed more than the current assets in determining the
total of company's assets. As reported in the table, the assets of PT ITMA for
years 2011 to 2016 consists of more than 90% of non-current assets and less than
10% of current assets. In 2012, the company had investment in associates and
account payable simultaneously. This could mean that the company has started to
invest in large sum of cash on that year. In 2013, the percentage of cash and cash
equivalent was 1.28% of the total assets while the time deposit was 0.67% of the
total assets. On the following years, the percentage of cash was decreased while
the percentage of time deposit was increased. This indicates that started from
2013, the company started to allocate some of their cash into the timedeposits.
d. HorizontalAnalysis
In the assets section, the total current assets of PT Sumber Energi Andalan
(ITMA) was increased until 2013 and started to decline on the following years.
The declined indicates that the company had decreasing amount of liquid assets
that can be readily converted into cash. It is reflected from the declining
percentage of account receivables for the latest three years and the company also
did not receive any other receivables from third parties and related parties in 2015
and 2016. Meanwhile in the liabilities and equity section, the percentage of total
liabilities are decreasing but fluctuates overtime which ranging from 13,40% until
97.03% of the base year. On the whole, the percentage of the liabilities during
2012 until 2016 is still lower than 2011 which means that the company’s
obligation was decreased compared to the base year.

3. PT Jakarta Kyoe Steel Works, Tbk (JKSW)

 c. VerticalAnalysis
The table shows the percentage of components of statement of financial
position based on the total number of assets. The percentage of total current asset
is fluctuating from 2011 to 2016 which is ranging from 38% until 49%. On the
other hand, the percentage of non-current asset also fluctuated in the range
between 50% until 63%. The fluctuation also happens for the total current
liabilities, non-current liabilities, and equity. To analyze, for example in 2016,
there are quite big number of percentage of account receivable for the total assets.
It describes the ability for the company to collect its cash is still low which can be
seen from the large percentage of account receivable. As the result, the number of
percentage of several liabilities to outside parties and investors is large also,
which give the outcome of capital deficiency. From the vertical analysis, it can be
compared also the components of the financial statement from year to year. In the
table, capital deficiencies are existed repeatedly for this company and the biggest
deficiency happened in 2015. However, the deficiency experienced decrease in
2016, which can indicate better cash management in the company’soperation.
d. HorizontalAnalysis
The table shows the percentage of each company from 2012 to 2016
which is based on the initial year assumed 2011. It also can give a broad view for
the overall achievement of the company between those years. In the total asset
row, it shows that the total asset in 2014 is said to fulfill the management’s
expectation rather than other years which experiencing a decrease. However, in
2014, it also a high percentage of total liability and the number of capital
deficiency were relatively smaller than in year 2015 and 2016. On the other hand,
the management might be rising questions for several components in 2016 which
resulting in high percentage of capital deficiency as well as the decreasing
percentage of total asset and increasing percentage of totalliabilities.

4. PT Jaya Pari Steel Tbk(JPRS)

c. VerticalAnalysis
 The significant decrease of JPRS’s total liabilities occurred in 2013. The
main cause of this decline in total liabilities is the number of account payables. In
year 2012, the company’s account payables were 3171.66% but then in 2013 it
declined dramatically to 0.29%. In rupiah, total liabilities declined by Rp
32,061,985,184 (Rp 51,097,519,438 to Rp 19,035,534,254). This change could be
driven by the fulfilment of company’s obligation to pay off its short-term debts to
its creditors in 2013.
d. HorizontalAnalysis
In the horizontal analysis, the total assets in JPRS were continuously
decreased up to 2016. The highest total assets owned by the company were in the
base year 2011, which was Rp 437,848,660,950. On the other hand, the lowest
total assets were in 2016, which was declined by -19.76% or Rp 86,530,351,087
(Rp 437,848,660,950 to Rp 351, 318,309,863) from the base year 2011. One of
the factors that cause the decrease of company’s total assets might be because the
company has kept the inventories to the point in which the valuedecreased.

5. PT Krakatau Steel(KRAS)
c. VerticalAnalysis
There was a significant increase in KRAS’s total assets from 2011 to 2016
by 64.16% (equal to $1,538,634) as well as in its total liabilities and equity.
However, the short-term assets, such as 2016 short-term investments and
receivables of KRAS was the lowest compared to the 5 previous years. It means
the increase in 2016 total assets could happen since KRAS’s 2016 deferred tax
assets increased by 2484.51% (equal to $119,882), which means KRAS has paid
its tax or rent of assets prior to its recognition in the statement of comprehensive
income. Further, in 2016, KRAS fixed assets and real estate assets increased by
298.6% and 61.35% (equal to $1,838,639 and $5,644 respectively). Thus, it is
apparent that when KRAS faced loss from the previous year, it would invest in
long-term assets, such as increasing fixed and real estate assets that resulted in
order to increase its total assets.
d. HorizontalAnalysis
 In general, the total assets of KRAS were influenced by the total of long-
term assets (non-current assets). Most of the total non-current assets are higher
than the total short-term assets (current assets). In 2015, KRAS did not invest in
short-term investments, but increased its restricted cash and time deposits by
1.08% of its total assets (equal to $40,099). Meanwhile in contrast, its non-current
assets was 75.9% of its total assets (equal to $892,290) and it was the highest
compared to the other years. Thus, it could be the strategy of KRAS to increase its
Total Comprehensive Income through investing activities in fixed assets, real
estate, and increase in restricted cash and time deposits.
 SHORT-TERM LIQUIDITY REPORT

OF INAI, ITMA, JKSW, JPRS AND KRAS

FOR THE PERIOD OF 2011-2016

 I. Goal of Analysis
Liquidity represents a business entity’s ability to pay its financial obligations
when they are due. Short-term liquidity analysis specifically measures a firm’s ability to
pay current obligations with cash generated from current assets. The purpose of this
report is to presents an introductory short-term liquidity analysis of five companies from
Basic Industry and Chemicals specifically Metal and Allied Products. The five companies
are PT Indal Alumunium Industry Tbk (INAI), PT Sumber Energi Andalan Tbk (ITMA),
PT Jakarta Kyoe Steel Works, Tbk (JKSW), PT Jaya Pari Steek Tbk (JPRS) and PT
Krakatau Steel (KRAS). The liquidity measures for 2012 through 2016; the 2011 ratios
are not incorporated since it is using average balance sheet. Data are presented in the
appendix.

II. Theory and Calculation of Short-Term LiquidityRatios

According to (Bergevin, 2002), a ratio measures the proportion between one
financial statement disclosure (or one group of disclosures) and another financial
statement disclosure (or group of disclosures). In the case of liquidity ratios, the relative
amounts of current accounts and their income statement counterparts provide analysts
with information about the amount, timing, and certainty of corporate liquidity. It helps
determine if a company can meets its maturing obligations and how effectively it can do
so. Below are the measures of short-term liquidity ratios.
1. Working Capital
Working capital is the difference between a company’s current assets and
its current liabilities. This is the first step when analyzing liquidity since it is the
initial measure of short-term liquidity. The computation is as follows:

𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2. CurrentRatio
Current Ratio measures the amount of current assets for each dollar in
current liabilities. A ratio more than one provides evidence that a company will
meet its maturing obligations and a ratio less than one means that a company will
 have liquidity problems. In other words, larger current ratio indicates sufficient
liquidity. The computation is as follows:
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

3. Quick Ratio
Quick Ratio reduces current assets by noncash accounts (prepaid
expenses) and current assets that would not generate cash if they could not be sold
(inventory). However, it is believed that quick ratio is a conservative measure of
short-term liquidity because it ignores the reality value of inventory. The
computation is asfollows:

(𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 − 𝑃𝑟𝑒𝑝𝑎𝑖𝑑 𝐸𝑥𝑝𝑒𝑛𝑠𝑒)

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

4. InventoryTurnover
Inventory Turnover is the number of times inventory is sold during a
reporting period. Greater number of inventory turnover is better for the company.
The computation is as follows:
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

5. Number of Days inInventory

Number of days in inventory reports the average number of days required
to sell inventory. Lower number of days in inventory indicates better position
because the company is able to sell the inventory faster. The computation is as
follows:

365
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
6. Account ReceivableTurnover
Account receivable turnover determine the number of times receivables
are collected in cash during the year. Higher number of account receivable
turnover is better for the company. The computation is asfollows:

𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠

𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑒𝑡 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

7. Number of Days in AccountReceivable

The number of days in accounts receivables reports the average length of
time between a credit sale and its cash collections. Lower number of days in
account receivable for a company is better. The computation is as follows:
365
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 =
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟

8. Inventory Conversion Cycle

Inventory conversion cycle enables analysts to track the average length of
time it takes to convert inventory into cash. Lower number of inventory
conversion cycle is better because it means the company is able to quickly convert
the assets into cash.

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝐶𝑦𝑐𝑙𝑒 =

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑁𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

9. Account Payable Turnover

Account Payable Turnover measures the number of times account payable
is paid during the reporting period. Lower number of account payable turnover for
company is better. The computation is as follows:

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑

𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
 10. Number of Days in AccountPayable
Number of days in account payable computes the average time required to
pay for purchases. Greater number of days in account payable for a company is
better.

365
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 =
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟

11. Net Cash Conversion Cycle

Net cash conversion cycle is the difference between the inventory
conversion cycle and the number of days in accounts payable. Lower number of
net cash conversion cycle is better for a company as less capital is invested in
working capital. The computation is as follows:

𝑁𝑒𝑡 𝐶𝑎𝑠ℎ 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝐶𝑦𝑐𝑙𝑒 =

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑁𝑢𝑚𝑏𝑒𝑟𝑠 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

− 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠 𝑖𝑛 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒

III. Analysis of Short-TermLiquidity

a. Working CapitalAnalysis

Working Capital
2012 2013 2014 2015 2016
INAI 213,377,364,643 103,793,212,259 49,042,343,308 14,002,328,191 2,860,351,340
ITMA 248,826 1,950,582 1,833,903 1,714,012 1,332,576
JKSW 85,591,627 98,474,594 90,448,527 65,869,511 55,815,775
JPRS 224,959,788,007 234,947,415,499 223,587,733,499 198,187,786,745 189,831,277,499
KRAS 313,144 56,146 (198,800) (463,855) (400,107)
 Working Capital
250,000,000,000

200,000,000,000

INAI
150,000,000,000
ITMA
100,000,000,000 JKSW
JPRS
50,000,000,000
KRAS

0
2012 2013 2014 2015 2016
(50,000,000,000)

As mentioned before, working capital is considered as a primary indicator

of liquidity. A company whose current assets exceed its current liabilities has
working capital, or is liquid. On the graph above, most of the working capital of
each company decreased during the period examined. The decreasing number of
working capital places the company in a risky position because the companies
were less liquid. Unlike the other companies that have slight fluctuation on its
working capital, PT Indal Aluminium Industry Tbk (INAI) working capital
always decreased from year 2012 to 2016. On the other hand, PT Krakatau Steel
Tbk (KRAS) is the only one that has negative working capital from year 2014 to
2016 which means that the company isilliquid.

b. Current RatioAnalysis

Current Ratio
2012 2013 2014 2015 2016
INAI 1.51 1.48 1.15 1.04 1.01
ITMA 0.70 3.40 26.20 65.00 9.70
JKSW 8.22 7.98 3.74 2.48 2.14
JPRS 4.39 12.39 320.48 26.51 11.70
KRAS 1.28 1.05 0.84 0.68 0.70
 Current Ratio
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

As stated before, current ratio is liquidity ratio which indicates the ability
of company to pay its short-term obligation. If the number of the ratio is large,
then the company will have sufficient liquidity. The above current ratios for PT
Indal Aluminium Industry (INAI), PT Jakarta Kyoei Steel Work (JKSW), and PT
Krakatau Steel (KRAS) are decreasing from 2012 up to 2016. On the other hand,
the current ratio for PT Sumber Energi Andalan (ITMA) and PT Krakatau Steel
(KRAS) fluctuated and experienced decreases from 2015 until 2016. It means that
each company has liquidity problem since the current ratio of each company is
decreasing.

c. Quick Ratio Analysis

Quick Ratio
2012 2013 2014 2015 2016
INAI 0.60 0.57 0.48 0.65 0.70
ITMA 0.60 3.30 25.70 63.60 9.60
JKSW 6.60 6.09 2.19 2.10 1.75
JPRS 3.20 10.53 258.54 20.65 9.11
KRAS 0.65 0.57 0.44 0.34 0.31
 Quick Ratio
300.00

250.00

200.00

150.00

100.00

50.00

0.00
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

Quick ratio is a measure of the amount of liquid assets available to offset

current debt. It is stated that companies with a quick ratio of greater than 1.0 are
sufficiently able to meet their short-term liabilities. Overall, ITMA, JPRS, and
JKSW are financially secure in the short-term since most of the yearly quick ratio
is higher than 1. These companies are able to quickly convert its receivables into
cash and easily cover their financial obligations. However, JPRS is in the most
liquid position compared to other competitors. In contrast, INAI and KRAS are
not in a good liquidity position due to the low quick ratio (less than 1). Even for
KRAS, the ratio keeps decreasing every year. This low or decreasing quick ratios
generally suggest that a company is over-leveraged, struggling to maintain or
grow sales, quickly paying bills or collecting receivables tooslowly.

d. Inventory ActivityMeasures

Inventory Turnover
2012 2013 2014 2015 2016 5 year average
INAI 2.06 2.02 2.25 3.35 4.21 2.78
ITMA 0 0 0 0 0 0
JKSW 4.02 4.06 2.26 4.32 12.34 5.4
JPRS 6.24 5.91 6.17 5.26 3.08 5.33
KRAS 2.82 3.55 3.82 3.58 2.89 3.33
Industry Average 3.37
 Inventory Turnover
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

Inventory turnover is a ratio showing how many times a company's

inventory is sold and replaced over a period of time. Based on the average of each
company, JPRS and JKSW had the highest inventory turnover compared to the
industry average which represented by these fivr companies. High inventory
turnover could mean that these companies have had unexpectedly strong sales.
Conversely, ITMA has the lowest inventory turnover since the company focuses
on providing services, thus the company did not have inventory to be sold.
Furthermore, INAI had the second lowest inventory turnover which indicates that
the company is not selling through products efficiently. According to the graph,
the ratio of INAI and JKSW are mostly increasing every year meanwhile JPRS
and KRAS ratio are decreasing. The decreasing over time could mean that the
company is not converting its inventory into cash as quickly as before.

Number of Days in Inventory

2012 2013 2014 2015 2016
INAI 177 181 162 109 87
ITMA 0 0 0 0 0
JKSW 91 90 161 85 30
JPRS 58 62 59 69 118
KRAS 129 103 96 102 126
 Number of Days in Inventory
200

150

100

50

0
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

The lower number of days in inventory in a company is better because this

number presents the length of time a company needed to sell its inventory. Based
on the comparison from these five companies, the best performance of number of
days in inventory is charged to JKSW. It is because the company doesn’t need to
wait for long time to sell their product. Although, the period of 2012 to 2013 the
company experienced decrease in number of days in inventory, in 2014 it
experienced a fairly high increase. However, until 2016 JKSW has the lowest
number of days in inventory compared to other companies. It indicates that the
company has good quality of product which result high demand of customers.
Therefore, JKSW don’t need to keep their product for a long time because every
time they produce, the goods are sold immediately.

Inventory Conversion Cycle

2012 2013 2014 2015 2016
INAI 249 263 252 222 234
ITMA 0 0 0 0 0
JKSW 334 410 496 369 180
JPRS 181 213 240 323 553
KRAS 186 165 152 160 185
 Inventory ConversionCycle
600

500

400

300

200

100

0
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

It is mentioned before that the inventory conversion cycle describes the

average length of time companies take to convert inventory into cash. Based on
the graph above, KRAS is the most liquid company compared with the other
companies within the industry. It only needs 170 days on the average while the
other companies need more than 200 days to convert an inventory purchase into
cash. In addition, ITMA does not have any inventories converted into cash since it
is a service company.

e. Other ActivityMeasures

Account Receivable Turnover

2012 2013 2014 2015 2016
INAI 5,10 4,43 4,06 3,22 2,47
ITMA 14,97 14,99 5,82 6,74 3,63
JKSW 1,07 1,17 1,05 1,75 3,21
JPRS 2,97 2,41 2,02 1,44 0,84
KRAS 6,40 5,86 6,45 6,23 6,21
 Account Receivable Turnover
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

As stated in the theory that accounts receivable turnover is used to

measure the number of times accounts receivable are collected in a reporting
period and measures how efficiently a company uses its asset. It is an important
indicator of a company’s financial and operational performance. Many companies
even have an accounts receivable allowance to prevent cash flowissues. The
higher accounts receivable turnover means better condition for the company. If
the ratio of accounts receivable turnover increases, it means a company is more
effectively processing credit. Meanwhile, if the ratio of accounts receivable
turnover decreases, a company is seeing more delinquent clients. So based on data
above, the best performance for accounts receivable turnover is charged to JKSW
because since 2012 until 2016, the company has an increasing amount of accounts
receivable turnover although in 2014 there is a slight decline, but JKSW still
remain in positive trend rather than othercompanies.

Number of Days in Account Receivable

2012 2013 2014 2015 2016
INAI 72 82 90 113 147
ITMA 24 24 63 54 100
JKSW 259 322 338 260 144
JPRS 123 151 181 254 435
KRAS 57 62 57 59 59
 Number of Days in Account Receivable
500

400

300

200

100

0
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

Number of days in account receivable is the estimation of the length of

time required to turn account receivable into cash. The graph shows that almost
each company experiences increases in the number of days in account receivable
from 2012 to 2016. The only firm which shows decreases over years is JKSW. It
means that JKSW has better ability to collect cash than other companies which
have experienced most likely increases in the number of days for each year.

Account Payable Turnover

2012 2013 2014 2015 2016
INAI 5.42 4.60 4.34 5.05 4.45
ITMA 0.00 0.00 0.00 0.00 0.00
JKSW 9.74 7.62 3.35 2.75 4.03
JPRS 9.01 19.04 500.78 41.94 9.92
KRAS 6.94 7.97 8.16 7.25 6.46
 Account Payable Turnover
600.00

500.00

400.00 INAI
ITMA
300.00
JKSW
200.00 JPRS
KRAS
100.00

0.00
2012 2013 2014 2015 2016

Accounts payable are the amounts that the company indebted to suppliers
and creditors for goods and services the company purchased. Accounts payable
turnover measures how long it takes for a company to pay its financial obligation
or debt to suppliers and creditors. As shown in the graph above, ITMA has the
lowest account payables turnover since the company provides services related to
export and import activities, and did not have other payables except in associates
and for taxes in particular year. In addition, INAI has the second lowest accounts
payable turnover which indicates that the company pays its debt slowly, when it
also has the most constant ratio from 2012 to 2016. Meanwhile JPRS has the
highest accounts payable turnover and it was pacing up and down in paying its
debt to suppliers and creditors. This means, JPRS has the shortest time between
purchase of goods and services and payment compared to four other companies,
even though the turnover was declining in the last two years (from 2014 to 2016),
which means the time for JPRS to pay off its debt becomes longer and it may be
caused by the declining cost of sales from 2014 to 2016. However, at this point, it
is assumed that JPRS was paying off its creditors and suppliers at a faster rate
compared to the rest of companies within the industry.
 Number of Days in Account Payable
2012 2013 2014 2015 2016
INAI 67 79 84 72 82
ITMA 0 0 0 0 0
JKSW 37 48 109 133 91
JPRS 41 19 1 9 37
KRAS 53 46 45 50 57

Number of Days in Account Payable

140
120
100
80
60
40
20
0
2012 2013 2014 2015 2016

INAI ITMA JKSW JPRS KRAS

The number of days payable is closely related with the accounts payable
turnover ratio. It is the amount of days that a company takes to pay its debt to
creditors and suppliers, in order to determine whether the company is efficient in
paying off whatever short-term financial obligations it may have. Since ITMA’s
accounts payable is very low, it does not need much time or even a day to pay its
debts. Previously, since JPRS has the fastest rate to pay off its debts, it takes JPRS
less than two months to clear all of its debts. On the other hand, JKSW needs the
longest to pay off its debt, starting from 2014 to 2016, meaning that the company
holds liquid assets or cash longer. This could happen because JKSW decided to
spend them for short-term investments.
f. Conversion Cycles

Net Conversion Cycle

2012 2013 2014 2015 2016
INAI 182 184 168 150 152
ITMA 0 0 0 0 0
JKSW 388 353 398 190 68
JPRS 141 194 239 315 516
KRAS 135 121 109 111 130

Net Conversion Cycle

600

500
Number of Days

400 INAI
ITMA
300
JKSW
200 JPRS
KRAS
100

0
2012 2013 2014 2015 2016

As mentioned before, lower number of days in net conversion cycle means

better condition for the company as less capital is invested in working capital.
According to the graph, JKSW net conversion cycle had decreased over time and
as of 2016, there are 68 days between when JKSW pays for its inventory and
when it collects the sale which is the lowest number of day compare to other
companies. In contrast, JPRS started their net conversion cycle at 141 days in
2012 and had increased over time resulting 516 days in the current year which is
the highest number of days, while the rest of the companies did not have
significantchanges.
IV. Conclusion

Short-term liquidation mainly focuses on how company is able to pay its financial
obligations and the time that it pays. One of the most significant indicators for liquidity is current
ratio. However, the perspective of investors and creditors differs in terms of the short-term
liquidation ratios. Investors prefer higher total current liabilities than the total current assets. The
reason is because if the current asset is high, it means there is a lot of idle cash within the
company. In contrast, creditors prefer higher total current asset than the total current liabilities.
The reason is because the company is able to immediately pay off their short-term obligations.
Out of the five companies that had been analyzed, PT Krakatau Steel (Persero) Tbk or known as
KRAS, the current ratio gradually decreases over the years. As for PT Jaya Pari Steel Tbk or
known as JPRS current ratio, it had the most significant increases. In terms of investor’s
preference, KRAS company condition is preferable than JPRS. However, creditors would prefer
JPRS because creditors prefer company who has sufficient liquidity.
 V. Appendix

PT INDAL ALUMUNIUM INDUSTRY Tbk AND ITS SUBSIDIARIES

Short-Term Liquidity Ratios

2016 2015 2014 2013 2012
Working Capital 2,860,351,340 14,002,328,191 49,042,343,308 103,793,212,259 213,377,364,643
Current Ratio 1.01 1.04 1.15 1.48 1.51
Quick Ratio 0.70 0.65 0.48 0.57 0.60
Inventory Turnover 4.21 3.35 2.25 2.02 2.06
Number of days in 87 109 162 181 177
inventory
Account Receivale 2.47 3.22 4.06 4.43 5.10
Turnover
Number of days in 147 113 90 82 72
Account Receivable

Inventory 234 222 252 263 249

conversion cycle
Account Payable 4.45 5.05 4.34 4.60 5.42
Turnover
Number of days in 82 72 84 79 67
account payable
Net conversion 152 150 168 184 182
cycle

Computations (in rupiah):

Average
Current
Assets 970,207,510,665 805,255,336,397 593,806,218,309 485,716,284,404 405,937,592,209
Average
Current
Liabilities 961,776,170,899 773,733,000,647 517,388,440,526 327,130,995,953 268,695,937,036
Average 1,164,123,994,331 1,019,729,280,127 683,161,122,962 512,410,700,368 469,279,590,010
COGS
Average
Inventory 276,268,425,318.50 304,154,319,065.50 303,844,373,594.00 253,687,878,573.50 228,055,301,158.50
Prepaid
Expenses 46,380,731,757.00 31,324,322,241.00 23,220,121,111.00 11,919,636,847.00 16,312,136,670.00
Average 1,334,593,121,415 1,159,069,180,211 787,082,555,065 611,678,516,649 569,270,544,802
Sales
Average 539,321,632,702.50 359,818,458,587.00 193,726,172,672.50 138,218,449,048.50 111,562,597,558.50
Account
Receivable
Average 261,628,300,289.00 201,798,856,677.00 157,455,021,079.50 111,384,269,896.50 86,591,741,267.00
Account
Payable
 PT Sumber Energi Andalan Tbk.

Short-term Liquidty Ratios

2016 2015 2014 2013 2012

Working capital (USD) 1,332,576 1,714,012 1,833,903 1,950,582 248,826

Current ratio 9.7 65.0 26.2 3.4 0.7
Quick ratio 9.6 63.6 25.7 3.3 0.6
Inventory turnover 0 0 0 0 0
Number of days in inventory 0 0 0 0 0
Account receivable turnover 3.63 6.74 5.82 14.99 14.97
Number of days in A/R 100 54 63 24 24
Inventory conversion cycle 0 0 0 0 0
Account payable turnover 0 0 0 0 0
Number of days in account
payable 0 0 0 0 0
Net conversion cycle 0 0 0 0 0

Computation (expressed in USD):

Current Assets 1,653,398 1,742,011 1,861,364 2,073,205 1,049,701
Current Liabilities 320,822 27,999 27,461 122,623 800,875
Account receivable 36,958 36,513 37,794 94,535 78,431
Revenue 133,509 133,509 367,000 402,700 2,190,816
Prepaid 7,322 37,245 39,142 31,449 53,122
Average current assets 1,697,705 1,801,688 1,967,285 1,561,453 574,459
Average current liabilities 174,411 27,730 75,042 461,749 862,834
Average A/R 36,736 37,154 66,165 86,483 75,703
Average revenue 133,509 250,255 384,850 1,296,758 1,132,908
Average prepaid 22,284 38,194 35,296 42,286 34,360
 PT. JAYA PARI STEEL Tbk

Short-term Liquidity Ratio

2016 2015 2014 2013 2012
Working Capital 189,831,277,499 198,187,786,745 223,587,733,499 234,947,415,056 224,959,788,007
Current Ratio 11.70 26.51 320.48 12.39 4.39
Quick Ratio 9.11 20.65 258.54 10.53 3.20
Inventory
Turnover 3.08 5.26 6.17 5.91 6.24
Number of days
in inventory 118 69 59 62 58
Account
receivable
turnover 0.84 1.44 2.02 2.41 2.97
Number of days
in account
receivables 435 254 181 151 123
Account
Payable
Turnover 9.92 41.94 500.78 19.04 9.01
Number of days
in account
payables 37 9 1 19 41
Inventory
conversion
cycle 553 323 240 213 181
Net cash
conversion
cycle 516 315 239 194 141

Computations (in Rupiah):

Average Current
Assets 212,135,406,208 219,153,046,129 229,985,192,353 250,148,569,551 284,716,809,852
Average Current
Liabilities 18,125,874,086 8,265,286,007 717,618,075 20,194,968,020 64,789,044,348
Average Cost of Sales 143,431,678,577 237,620,902,785 252,455,458,923 315,831,915,355 509,927,571,066
Average Inventory 46,530,585,412 45,212,044,653 40,884,763,952 53,430,456,987 81,672,132,406
Average Account
Receivables 157,161,076,867 158,956,902,941 126,109,858,347 135,932,829,932 185,316,991,334
Average Sales 132,008,960,548 228,481,438,745 254,441,813,702 328,186,242,933 551,250,149,184
Average Account
Payables 14,462,964,982 5,666,302,887 504,125,759 16,584,003,824 56,583,670,339
 PT JAKARTA KYOEI STEEL WORKS, Tbk

Short-Term Liquidity Ratios

2016 2015 2014 2013 2012

Working capital
55,815,775,347 65,869,511,330 90,448,527,480 98,474,594,479 85,591,627,815
Current ratio 2.14 2.48 3.74 7.98 8.22
Quick ratio 1.69 2.09 2.13 5.99 6.51
Inventory
10.08 3.36 2.32 4.15 4.84
turnover
Number of days
36 109 157 88 75
in inventory
Account
receivable 2.54 1.40 1.08 1.13 1.41
turnover
Number of days
inaccount 144 260 338 322 259
receivable
Inventory
180 369 496 410 334
conversion cycle
Account payable
4.03 2.75 3.35 7.62 9.74
turnover
Number of days
in account 91 133 109 48 37
payable
Net conversion
89 236 387 362 297
cycle
Computations (in Rupiah):
Average Current
Assets 114,399,315,856 130,861,317,094 128,952,054,464 105,221,916,615 106,783,483,674
Average Current
Liabilities 53,556,672,518 52,702,297,689 34,490,493,485 13,188,805,468 12,987,763,808
Average COGS
204,886,007,296 123,698,358,737 90,870,878,949 95,275,678,682 117,157,942,863
Average
Inventory 20,331,808,374 36,804,460,652 39,127,703,843 22,978,861,467 24,189,940,613
Average
Accounts 78,612,156,922 81,900,386,073 82,593,949,875 78,441,782,715 80,927,386,869
Receivable
Average
Accounts 50,871,621,711 44,905,768,025 27,103,830,250 12,502,128,829 12,031,835,878
Payable
Net sales 256,234,745,701 143,408,228,441 86,480,258,028 91,708,035,390 86,197,771,507
Cost of Goods 250,825,197,548 158,946,817,044 88,449,900,430 93,291,857,468 97,259,499,895
Sold
Average Sales
199,821,487,071 114,944,243,235 89,094,146,709 88,952,903,449 114,152,429,508
Total Prepaid
3,660,582,534 560,758,956 2,220,975,849 1,281,041,387 1,227,357,294
 PT KRAKATAU STEEL (Persero) Tbk.

Short-Term Liquidity Ratios

2016 2015 2014 2013 2012
Working Capital (in thousands USD) (400,107) (463,855) (198,800) 56,146 313,144
Current Ratio 0.70 0.68 0.84 1.05 1.28
Quick Ratio 0.31 0.34 0.44 0.57 0.65
Inventory Turn Over 2.89 3.58 3.82 3.55 2.82
Number of Days in Inventory 126 102 96 103 129
Account Receivables Turn Over 6.21 6.23 6.45 5.86 6.40
Number of Days in Account Receivables 59 59 57 62 57
Inventory Conversion Cycle 185 160 152 165 186
Account Payables Turn Over 6.46 7.25 8.16 7.97 6.94
Number of Days in Account Payables 57 50 45 46 53
Net Cash Conversion Cycle 129 110 108 119 134

Computation (in thousands USD):

Average Current Assets 944,807 975,457 1,076,921 1,247,437 1,442,886
Average Current Liabilities 1,344,914 1,439,311 1,275,721 1,191,291 1,129,742
Average Sales Revenues 1,333,269 1,595,334 1,976,647 2,185,947 2,160,149
Average Cost of Revenues 1,273,872 1,592,885 1,908,171 2,076,927 2,019,877
Total Inventories 473,956 408,620 480,871 519,086 652,368
Average Inventory 441,288 444,746 499,979 585,727 715,734
Total Prepaid Expenses 59,766 78,921 40,901 44,906 52,546
Average Prepaid Expenses 69343.5 59911 42903.5 48726 26273
Total Current Receivables 197,561 232,061 279,990 333,159 412,495
Average Account Receivables 214,811 256,026 306,575 372,827 337,293
Total Current Payables 210,140 184,494 255,073 212,566 308,654
Average Account Payables 197,317 219,784 233,820 260,610 291,060