Measurement of Return on Asset (ROA) based on Comprehensive Income and its Ability to Predict Investment Returns: an Empirical Evidence on Go Public Companies in Indonesia before and during the Covid-19 Pandemic

Marhaendra Kusuma(1*)
(*) Corresponding Author

DOI: 10.24269/ekuilibrium.v16i1.2021.pp94-106


Abstract


Purpose - The concept of recognizing all inclusive income, which is used by IFRS and Indonesian SAK, is the basis for presenting other comprehensive income in the income statement. This change in format became the idea of developing a financial performance measurement.

Methodology - Testing the effect of attributable comprehensive income ROA and attributable ROA net income on future cash flows and net income, as a proxy for the ability to provide future returns, and applying them in measuring performance before and during the Covid-19 pandemic.

Findings - ROA net income is better able to predict future investment returns. ROA comprehensive income has more relevance value, when only other items of comprehensive income that have the potential to be realized are included. In assessing performance, users are advised to keep using the ROA of the net income version, and when using the ROA of the comprehensive income version, it is advisable to include only OCI which will be reclassified. The financial performance of companies in many industrial sectors experienced a decline during the Covid 19 pandemic using two ROA measures.

Novelty - Development of ROA formulation by including other comprehensive income and profit attribution, so far ROA is only based on net income.


Keywords


ROA based on Comprehensive Income; Predict Investment Returns

Full Text:

References


  1. Banks, L., Hodgson, A., & Russell, M. (2018). The location of Comprehensive Income Reporting – Does it Pass the Financial Analyst Revision Test? Accounting Research Journal, 31(4), 531–550. https://doi.org/10.1108/ARJ-04-2017-0075
  2. Būmane, I. (2018). The Methodology of the Statement of Comprehensive Income and its Impact on Profitability: The Case of Latvia. Entrepreneurship and Sustainability Issues, 6(1), 77–86. https://doi.org/10.9770/jesi.2018.6.1(6)
  3. Chen, H.-C., & Yeh, C.-W. (2021). Global Financial Crisis and COVID-19: Industrial Reactions. Finance Research Letters, September 2020, 101940. https://doi.org/10.1016/j.frl.2021.101940
  4. Cohen, D. A. (2003). Quality of Financial Reporting Choice : Determinants and Economic Consequences Quality of Financial Reporting Choice : Determinants and Economic Consequences. London Business School Accounting Symposium.
  5. Gang, J., Qian, Z., & Xu, T. (2019). Investment Horizons, Cash Flow News, and the Profitability of Momentum and Reversal Strategies in the Chinese stock market. Economic Modelling, 83(February), 364–371. https://doi.org/10.1016/j.econmod.2019.08.021
  6. Indrawati, S. M. (2020). Dampak Covid-19, Pertumbuhan Ekonomi Kuartal 2 Diperkirakan Negatif. Kementerian Keuangan Republik Indonesia. https://www.kemenkeu.go.id/publikasi/berita
  7. Kanagaretnam, K., Mathieu, R., & Shehata, M. (2009). Usefulness of Comprehensive Income Reporting in Canada. Journal of Accounting and Public Policy, 28(4), 349–365. https://doi.org/10.1016/j.jaccpubpol.2009.06.004
  8. Kusuma, M. (2017). Konstribusi Informasi Akuntansi Biaya dalam Meningkatkan Nilai Perusahaan dan Tanggung Jawab kepada Stakeholder pada Perusahaan Manufaktur Semen di Indonesia. Ekuilibrium, 12(2), 102–118. http://journal.umpo.ac.id/index.php/ekuilibrium/article/view/673/555
  9. Kusuma, M. (2020). Penghasilan Komprehensif lain dan Prediksi Arus Kas Masa Depan : Bukti dari Indonesia. Seminar Nasional SENIMA Ke 5 Universitas Negeri Surabaya, Senima 5, 815–832. http://bit.ly/ProsidingSenima5
  10. Kusuma, M., Zuhroh, D., Assih, P., & Chandrarin, G. (2021). The Effect of Net Income and Other Comprehensive Income o n Future ’ s Comprehensive Income With Attribution of Comprehensive Income as Moderating Variable. International Journal of Financial Research, 12(3), 205–219. https://doi.org/10.5430/ijfr.v12n3p205
  11. López-Quesada, E., Camacho-Miñano, M. del M., & O. Idowu, S. (2018). Corporate governance practices and comprehensive income. Corporate Governance (Bingley), 18(3), 462–477. https://doi.org/10.1108/CG-01-2017-0011
  12. Marchini, P. L., & D’Este, C. (2015). Comprehensive Income and Financial Performance Ratios: Which Potential Effects on RoE and on Firm’s Performance Evaluation? Procedia Economics and Finance, 32(January 2009), 1724–1739. https://doi.org/10.1016/s2212-5671(15)01478-1
  13. Nguyen, H. H., Ngo, V. M., Tram, A., & Trans, N. (2021). Financial Performances, Entrepreneurial Factors and Coping Strategy to Survive in the COVID-19 Pandemic: Case of Vietnam. Research in International Business and Finance, December 2020, 101380. https://doi.org/10.1016/j.ribaf.2021.101380
  14. Rees, L. L., & Shane, P. B. (2012). Academic Research and Standard-Setting: the Case of Other Comprehensive Income. Accounting Horizons, 26(4), 789–915. https://doi.org/10.2308/acch-50237
  15. Sajnóg, A. (2017). The Role of Comprehensive Income in Predicting Banks’ Future Earnings based on the Practice of Banks Listed on the Warsaw Stock Exchange. Equilibrium, 12(3). https://doi.org/10.24136/eq.v12i3.26
  16. Saymeh, A. A., Khalaf ALkhazaleh, A. M., & Musallam, E. M. (2019). The Impact of Other Comprehensive Income Items on Financial Performance: Case of Jordanian Commercial Banks. The Journal of Social Sciences Research, 5(54), 1216–1228. https://doi.org/10.32861/jssr.54.1216.1228

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.