| Summary: | Abstract- In today�s global recession, the sustainability of a firm heavily
depends on the ability and success of its financial management function. Working
capital is an important issue in financial decision making since it is a part of
investment in short-term asset that requires appropriate financing. Deloof (2003)
found that the longer the time lag in working capital, the larger the investment will
be. A long cash conversion cycle might increase profitability because it leads to
higher sales. However, corporate profitability might decrease due to a higher cash
conversion cycle if the costs of higher investment in working capital rise faster
than the benefits of holding more inventories and/or granting more trade credit to
customers.
Efficient Working Capital Management is used to make sure that an
optimum balance between profitable and risk is achieved. It also affects the
functions of the company�s operational finance and creates the company�s value
indicating that the company has been successful. In the research, profitability is
measured by using ROE (Return on Equity) as a dependent variable, CCC (Cash
Conversion Cycle) as the independent variable, and Sales Growth (SG), Current
Ratio (CR), and Degree of Financial Leverage (DFL) as the control variables.
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It result that Standardized Cash Conversion Cycle (SCCC) has a negative
and significant impact on the company profitability (ROE). Control variable
on the analysis of regression model I have no significant impact on the
company profitability. However, independent variables explain only 0.9% of
the variation in ROE. While for Inventory Conversion Period (ICP) and
Payable Deferral Period (PDP), it does not significantly influence the
company profitability (ROE). Control variable does not significantly influence
the company profitability (ROE) on regression model II. Independent
variables explain only 1.9% of the variation in ROE.
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