| dc.description.abstract | Working capital management is a very important part of corporate finance. If the company’s lack of
working capital, the company cannot run its operation to the maximum. However, if company had excess
working capital, the company will have idle funds. It reduces company’s profitability. This problem
makes the management must be careful in making decisions related to working capital. Firm may have
an optimal level of working capital that maximizes their value.
There are few studies in many countries that show the influence of working capital management to
company’s profitability. Deloof (2003), Raheman dan Nasr (2007), Ukaegbu (2014) dan Gama (2015),
found that working capital management (proxied by average collection period, average payable period,
inventory conversion period, and cash conversion cycle) affects to company’s profitability. However,
Mathuva (2010) dan Vahid et al. (2012) did not find the effect when working capital management was
measured using cash conversion cycle. Gill et al. (2010), Napompech (2012), dan Abuzayed (2012) also
cannot prove the effect when working capital management was measured using average payable period.
Based on the inconsistency of these empirical results, we interested in re-examine the effect of working
capital management to company’s profitability in Indonesian’s food and beverage sector companies
that listed at Indonesian Stock Exchange from the period 2009 to 2014.
Data for this study was collected from the food and beverage companies on the Indonesian Stock
Exchange for the periods 2009 to 2014. Our study used purposive sampling method. The final sample
of this study is 72 firm-years observation. We use the pooled regression type of panel data analysis.
Our research had two regression models. In Model 1, we used Cash Conversion Cycle (CCC), which
measure comprehensively working capital management, as an independent variable. In Model 2, the
three components of working capital management, i.e. Average Collection Period (ACP), Inventory
Conversion Period (ICP), Average Payment Period (APP) has been regressed againts the dependent
variable. We used ACP, ICP and APP to indicate the company’s sales policy, inventory policy and
purchasing policy, respectively. To show the effect of working capital management policies on the firm
profitability, this study used the return on assets (ROA) as dependent variable.
The results show that the component of working capital management, i. e. Average Collection Period
and Inventory Collection Period have negative effect on the company’s profitability. Furthermore, we
found that Cash Conversion Cycle dan Average Payment Period has not impact on the profitability.
Raheman et al. (2010) showed that there are two beliefs which can explain about the relationship
between working capital management and profitability. The traditional belief argue that reducing
working capital investment would positively effect the profitability of firm by reducing proportion of
current asset in total assets (working capital aggressive policy). However, divergent to traditional
belief, more investment in working capital might also increase profitability (working capital
conservative policy). Our findings provide empirical support for the traditional belief, i.e. working
capital aggresive policy.
The results of our study indicate that companies need to accelerate their cash collection and sales to
enchance the company’s profitability. The management of a company can enchance profitability by
reducing the number of days account receivables and inventory turnover. Our findings help the
management of a company to choose which working management policy must be implement in the
company, in order to enhance the profitability. | en_US |
