ABSTRACT

One of the business finance problems concerns with the financial balance. The financial balance is achieved if there is a balance between the equity and the external capital needed, due to the cost of capital with relationship by using the capital must be optimum. For measuring how effective the using of external capital can be evaluated from the capital structure to produce the profit. That is the reason why the writer try to make research. Limit of ratio of long term liability to owner's equity (capital structure) is influenced by the business characteristics. One of the aspects in its analysis is using the return on owner's equity (showing the ability of the owner's equity to yield profits). Addition of outside capital/long term liability for investments can be performed if the return of long term liability exceeds its interests. To compute the return of long term liability, economic return is used. The higher the economic return, the higher the increase of return on owner's equity, using the long term liability. In this situation, return on owner's equity is stated as the function of capital structure and economic return.

Based on Brigham's theory, factors affecting the capital structure are stability of sales, assets structure, profitability, assets growth rate, tax, control over company, management's attitude, and condition of the stock exchange market. The factors show the positive correlation with the capital structure. The research is done at State Electricity Company (Perusahaan Umum Listrik Negara) to collect the data of Financial Report for 18 years period from 1983 to 2000. Return on Owner's Equity (ROE) concepts, which is the use of liability has taken account of Return on Owner's Equity. Factors affectivity capital structure concepts which is profits increase, so that addition of equity by the decrease of the value of the firm. The most dominant factor affectivity the capital structure is the variable economic rentability.

Keywords : Capital Structure Stability of Sales, Assets Structure, Asset Growth, Profitability, Economic Rentability, Return On Equity (ROE)