The Effect of Working Capital and Working Capital Effectiveness on Profitability in Metal and Cement Manufacturing Companies Listed on the Indonesia Stock Exchange
Introduction
The metal and cement manufacturing sectors are crucial components of the Indonesian economy, contributing significantly to the country's GDP. Companies operating in these sectors face intense competition, fluctuating raw material prices, and market conditions that can impact their profitability. One of the key factors that can influence a company's profitability is working capital, which reflects its ability to fulfill short-term obligations and carry out daily operations. This study aims to explore the effect of working capital and working capital turnover, both separately and simultaneously, on the profitability of companies engaged in the metal and cement manufacturing sectors listed on the Indonesia Stock Exchange.
Background of the Study
The Indonesia Stock Exchange (IDX) is the primary stock exchange in Indonesia, providing a platform for companies to raise capital and for investors to participate in the country's capital market. The metal and cement manufacturing sectors are among the most prominent industries listed on the IDX, with companies such as PT Aneka Tambang Tbk, PT Semen Indonesia Tbk, and PT Krakatau Steel Tbk being some of the largest players. These companies face significant challenges in managing their working capital, including fluctuations in raw material prices, changes in market conditions, and the need to maintain a competitive edge in the market.
Research Questions
This study aims to answer the following research questions:
What is the effect of working capital on the profitability of metal and cement manufacturing companies listed on the Indonesia Stock Exchange?
What is the effect of working capital turnover on the profitability of metal and cement manufacturing companies listed on the Indonesia Stock Exchange?
Does the simultaneous effect of working capital and working capital turnover on profitability differ from their separate effects?
Methodology
This study used a quantitative approach, employing a purposive sampling method to select 18 companies out of a total of 19 companies that met the criteria as samples. The data used includes audited financial statements from 2007 to 2011, obtained from trusted sources such as the site www.idx.co.id and www.icmd.com . The data analysis process was carried out through classical assumptions testing and hypothesis testing to ensure the validity and reliability of research results.
Working Capital Analysis and Profitability
Working capital is one of the key factors in a company's operations, especially in the manufacturing sector. Working capital reflects a company's ability to fulfill short-term obligations and carry out daily operations. A company with sufficient working capital will be able to buy raw materials, pay employee salaries, and cover other expenses needed to maintain its operations. When working capital is well managed, companies can increase productivity and efficiency, which in turn will have a positive impact on profitability.
Working Capital Turnover and Profitability
Working capital turnover is a measure of how effective a company is in using its working capital. This indicator helps companies in assessing how fast current assets can be converted into income. However, the results showed that although working capital turnover was important, in the context of the metal and cement manufacturing companies studied, working capital turnover had no significant effect on profitability. This may be caused by external factors such as fluctuations in raw material prices and market conditions that can affect company operations.
Conclusion
Based on the results of the study, it was concluded that working capital has a positive and significant influence on the profitability of metal and cement manufacturing companies listed on the Indonesia Stock Exchange. Meanwhile, working capital turnover does not show a significant impact when analyzed separately. This study confirms the importance of efficient working capital management in achieving higher profitability and providing insight for company management in formulating appropriate financial strategies to improve financial performance in the midst of competitive market conditions.
Recommendations
Based on the findings of this study, the following recommendations are made:
Companies need to pay more attention to working capital to increase profitability.
Working capital turnover needs to be re-evaluated to adjust to a broader business strategy.
Companies should consider implementing efficient working capital management practices to improve their financial performance.
Limitations of the Study
This study has several limitations, including:
The study only focused on metal and cement manufacturing companies listed on the Indonesia Stock Exchange.
The study only used audited financial statements from 2007 to 2011.
The study did not consider other factors that may influence working capital and profitability.
Future Research Directions
Future research should consider the following directions:
Investigating the effect of working capital and working capital turnover on profitability in other industries.
Examining the impact of other factors on working capital and profitability.
Developing a more comprehensive model of working capital management that incorporates other variables.
References
Aneka Tambang Tbk. (2022). Annual Report 2021.
Semen Indonesia Tbk. (2022). Annual Report 2021.
Krakatau Steel Tbk. (2022). Annual Report 2021.
Indonesia Stock Exchange. (2022). List of Companies Listed on the IDX.
ICMED. (2022). List of Companies Listed on the IDX.
Appendix
List of Companies Selected for the Study
Data Analysis Procedure
Results of Classical Assumptions Testing
Results of Hypothesis TestingQ&A: The Effect of Working Capital and Working Capital Effectiveness on Profitability in Metal and Cement Manufacturing Companies Listed on the Indonesia Stock Exchange
Q: What is the main objective of this study?
A: The main objective of this study is to explore the effect of working capital and working capital turnover, both separately and simultaneously, on the profitability of companies engaged in the metal and cement manufacturing sectors listed on the Indonesia Stock Exchange.
Q: What is working capital, and why is it important for companies?
A: Working capital is the amount of money a company needs to operate its business, including the cost of goods sold, accounts receivable, and inventory. It is essential for companies to manage their working capital effectively to ensure they have sufficient funds to meet their short-term obligations and carry out daily operations.
Q: What is working capital turnover, and how does it affect profitability?
A: Working capital turnover is a measure of how effective a company is in using its working capital. It is calculated by dividing the cost of goods sold by the average working capital. A higher working capital turnover indicates that a company is more efficient in using its working capital, which can lead to higher profitability.
Q: What were the findings of this study?
A: The study found that working capital has a positive and significant influence on the profitability of metal and cement manufacturing companies listed on the Indonesia Stock Exchange. However, working capital turnover does not show a significant impact when analyzed separately.
Q: What are the implications of this study for companies?
A: The study suggests that companies need to pay more attention to working capital to increase profitability. Additionally, working capital turnover needs to be re-evaluated to adjust to a broader business strategy.
Q: What are the limitations of this study?
A: The study has several limitations, including:
The study only focused on metal and cement manufacturing companies listed on the Indonesia Stock Exchange.
The study only used audited financial statements from 2007 to 2011.
The study did not consider other factors that may influence working capital and profitability.
Q: What are the future research directions based on this study?
A: Future research should consider the following directions:
Investigating the effect of working capital and working capital turnover on profitability in other industries.
Examining the impact of other factors on working capital and profitability.
Developing a more comprehensive model of working capital management that incorporates other variables.
Q: What are the practical implications of this study for company management?
A: The study provides insight for company management in formulating appropriate financial strategies to improve financial performance in the midst of competitive market conditions. It also highlights the importance of efficient working capital management in achieving higher profitability.
Q: What are the implications of this study for investors and stakeholders?
A: The study provides valuable information for investors and stakeholders to assess the financial performance of companies in the metal and cement manufacturing sectors. It also highlights the importance of considering working capital and working capital turnover when evaluating a company's financial health.
Q: What are the future implications of this study for the Indonesian economy?
A: The study has implications for the Indonesian economy, as it highlights the importance of efficient working capital management in achieving higher profitability in the metal and cement manufacturing sectors. This can have a positive impact on the country's GDP and economic growth.
Q: What are the next steps for researchers and practitioners based on this study?
A: Researchers and practitioners should consider the following next steps:
Conducting further research on the effect of working capital and working capital turnover on profitability in other industries.
Developing a more comprehensive model of working capital management that incorporates other variables.
Implementing efficient working capital management practices to improve financial performance in the midst of competitive market conditions.