THE RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT AND PROFITABILITY IN CONSUMER GOODS COMPANIES LISTED ON INDONESIA STOCK EXCHANGE

Abstract

The expertise of the management to arrange working capital strategy is the key to optimizing
a firm’s profitability and increasing shareholders’ wealth. The purpose of this study is to
identify and determine the statistical relationship between working capital management and
profitability in consumer goods companies listed on Indonesia Stock Exchange within the
period of 2014 to 2016. Fixed financial asset ratio, financial debt ratio and firm size were used
as the controlling variables. In data analysis, we used the multiple regression method with SPSS
application. The initial population consisted of 39 companies in the consumer goods sector.
However, after we implemented the purposive sampling method, there were only 36 companies
included in this research. The results of our research showed that there is a statistically
significant negative relationship between profitability, measured by gross profit and the cash
conversion cycle, and the component of the cash conversion cycle including the number of
account receivable days and the number of inventory days. The study also showed that there is
no significant relationship between gross profit and the number of account payable days.