ISSN 2394-5125
 

Research Article 


THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto.

Abstract
Rational and efficient asset allocation and investment decisions in the capital market require
relevant and reliable information. One source of information in such decision making in capital market is
financial statements. Financial statements, however, provide voluminous and complex information which in turn
diminishing the quality of the decision. Based on current studies investors are not fully rational decision maker
due to the presence of bounded rationality. To reduce the complexity of information and make a rational
decision, investor and financial analyst use financial ratios to evaluate companyís financial performance. This
research was aimed to observe whether the use of financial ratio to evaluate company's financial performance
can mitigate the investor irrationality in asset allocation and financial decision making. The research sample was
the financial statements of company listed on Indonesian Stock Exchange (IDX) during 2015 to 2017. Data were
downloaded from Indonesian Capital Market web sites. Correlation analysis used to analyze the effectiveness of
11 financial ratios data. The result of the study indicates the ability of financial ratio describing companyís
financial performance. Pearsonís correlation analysis also indicates a significant and high correlation within
groups among liquidity ratios, solvency ratios, and profitability ratios. This result shows that some ratios can be
simplified and reduced to a simplest and efficient analysis tools.

Key words: Financial analysis, financial ratio, financial performance evaluation, financial decision making


 
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How to Cite this Article
Pubmed Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. JCR. 2020; 7(16): 166-175. doi:10.31838/jcr.07.16.23


Web Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. http://www.jcreview.com/?mno=2843 [Access: June 01, 2021]. doi:10.31838/jcr.07.16.23


AMA (American Medical Association) Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. JCR. 2020; 7(16): 166-175. doi:10.31838/jcr.07.16.23



Vancouver/ICMJE Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. JCR. (2020), [cited June 01, 2021]; 7(16): 166-175. doi:10.31838/jcr.07.16.23



Harvard Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto (2020) THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. JCR, 7 (16), 166-175. doi:10.31838/jcr.07.16.23



Turabian Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. 2020. THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. Journal of Critical Reviews, 7 (16), 166-175. doi:10.31838/jcr.07.16.23



Chicago Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. "THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION." Journal of Critical Reviews 7 (2020), 166-175. doi:10.31838/jcr.07.16.23



MLA (The Modern Language Association) Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto. "THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION." Journal of Critical Reviews 7.16 (2020), 166-175. Print. doi:10.31838/jcr.07.16.23



APA (American Psychological Association) Style

Rusmawan Wahyu Anggoro, Lita Kusumasari, Miswanto (2020) THE EFFECTIVENESS OF FINANCIAL RATIO TO MITIGATE INFORMATION COMPLEXITY OF FINANCIAL STATEMENT FOR PERFORMANCE EVALUATION. Journal of Critical Reviews, 7 (16), 166-175. doi:10.31838/jcr.07.16.23