Profitability analysis of leather tanning industry with capital structure without interest using canvas financial management approach

Abstract

There were around 330 leather tanning industries in Garut in 2011. Currently, there are only 220 tanning industries left. Contrarily, in 2011 credit facility users from the tanneries were only 15% then increased to 95% in 2019. Loans with an interest system will incur new costs that can cause price increases or reduce incomes, this is what is thought to be the cause of the reduced number of the leather tanning industry. This study aims to calculate the impact of credit on the price and profitability of the leather tanning industry in Sukaregang, Garut. Capital structure is the ratio between external capital and internal capital. This study uses the Financial Management Canvas approach to overcome the analysis complexity because in general SMEs do not have adequate financial reports. The results showed that changes in the capital structure causes unbalanced in the income statement. An increase in product price is performed to obtain a balanced income statement. Another way is by reducing the profits to pay the loan interest. The existence of external funds in the form of loans with an interest system causes an increase in selling prices and or reduces profitability.