Working capital impact on profitability :: A case conversion cycle approach

NUGROHO, Lukito Adi, Supriyadi, Dr., M.Sc

2009 | Tesis | S2 Magister Manajemen

The aim of this research is to analyze the impact of working capital management on profitability. The relationship between working capital management and profitability examined using multiple regression analysis. In this study, a sample of 59 company listed in Jakarta Stock Exchange (now Indonesia Stock Exchange) for a period of 5 years from 2003-2007. The dependent variable, return on total assets is used as a measure of profitability, while variables of working capital management including cash conversion cycle, days in payables, days in receivables, days in inventories taken as independent variables, and sales growth, size (measure by natural logarithm of sales) and debt ratio of the company have been used as control variables. The results show that there is a strong negative relationship between variables of the working capital management and profitability of the company. It means that as the cash conversion cycle increases it will lead to decreasing profitability of the firm, and managers can create a positive value for the shareholders by reducing the cash conversion cycle to a possible minimum level.

Kata Kunci : Working capital management,Profitability,Cash conversion cycle