The Influence Of Working Capital Management On Return On Assets (Empirical Study On Textile Companies Listed In Indonesia Stock Exchange Period 2017-2019)
Natasia Dwi Utami1 , Hesti Budiwati2 , Sukma Irdiana3
STIE Widya Gama Lumajang123 Email: [email protected]1 Email: [email protected]2 Email: [email protected]3
Abstract
The higher the rate of Return On Asset, the higher the profitability of the company. This study aims to analyze the effect of cash turnover, accounts receivable turnover and inventory turnover on the Return On Assets of textile companies listed on Indonesian Stock Exchange for the period 2017-2019. This research is quantitative with a sample of 48 companies that have met the criteria with a significance level of 5%. This research was conducted using secondary data and processed by multiple linear regression analysis method. The results of this study indicate that cash turnover and inventory turnover have no effect on Return On Assets in textile companies listed on Indonesian Stock Exchange for the 2017-2019 period, accounts receivable turnover has a positive and significant effect on Return On Assets in textile companies listed on Indonesian Stock Exchange for the 2017-2019 period. Meanwhile, cash turnover, accounts receivable turnover and inventory turnover simultaneously affect Return On Assets in textile companies listed on the Indonesian Stock Exchange for the 2017-2019 period.
Keyword: Cash Turnover, Accounts Receivable Turnover, Inventory Turnover and Return On Assets.
INTRODUCTION
The rapid development of a business will result in a high level of competition in various industrial sectors. Competition not only occurs in the country, but also from abroad. In order to obtain profit, the company intends to anticipate the decrease in the value of investment and meet the interests of the owner of the capital. Ministry of Industry data in 2020, The textile and apparel industry showed a resounding performance throughout 2019 by recording growth from -4.79% in 2015 to 8.73% in 2018, while the second quarter of 2019 grew by 20.71%. In the textile industry sector, the development of investment value since 2015-2018 experienced ups and downs, had reached a value of Rp. 12.83 trillion in 2017 and swept to Rp. 7.69 Trillion (2018) and in the first semester of 2019 amounted to Rp. 2.63 Trillion. According to Muhdori, Director of Textile Industry the cause of the high growth that occurs in the textile industry and textile products is a considerable investment in the upstream sector, especially rayon producers. There are 18 textile and garment industry sub-sector issuers competing to increase sales volume to improve the company's profitability. The higher the profitability level, the better the company's performance.
Financial performance is an achievement achieved by the company's management in various activities that include efficient and effective operation, investment, and funding (Irfani, A. S., 2020:181). Information about a company's performance is used by investors to make a decision on whether they will maintain an investment in the company or look for other alternatives. The company can be said to have performed well if from year to year the company's financial statements showed increasing profits. Good financial performance will improve the profitability of the company. Profitability is the ability of the company to generate profit from the results of asset utilization, sales, and use of its own capital (Irfani, A. S., 2020:187).
Return On Asset is a ratio that measures the company's ability to generate profit by using all assets owned (Suroso, S., 2018:39). The result of this ratio can provide information for the management of the company and other parties who have an interest with the company about the efficiency of the company in generating profit. The higher the return on asset level, the higher the profitability of the company. High low profitability can be affected by many factors such as working capital.
Working capital is one of the important elements in the company, because working capital is used to finance the company's activities such as the purchase of raw materials, labor and other costs that can provide benefits for the company. Financial managers should be able to plan working capital according to the needs of the company. Excessive working capital can cause a lot of funds to be idle, whereas if the company lacks working capital then the company's operational activities will be hampered. There are 3 elements of working capital, namely cash, receivables and manageable supplies to increase the company's growth.
Cash is cash and other forms that can be cashed if the company needs (Saputra, Y. E. A., 2019:269). Cash is placed as the first component of current assets in the balance sheet because cash is the most liquid asset owned by the company and can be used immediately to meet the company's financial obligations. The lower the cash turnover rate, the more inefficient the level of use. This is because if the cash turnover is low then more money is not used. Cash can be used by companies to pay loans, buy office supplies, buy supplies and pay employees wages and salaries.
The Company uses the cash turnover ratio to measure the level of adequacy of working capital required. In addition to cash, another element is receivables.
Receivables are the right to collect a certain amount of assets made by creditors against debtors who have been willing to pay off in the future (Saputra, Y. E. A., 2019:263). Receivables arise due to the sale of credit. Receivables payments are not made in cash, but are gradual. Receivables are generally classified into trade receivables, money order receivables and other receivables. The faster the turnover of receivables means that the company is more efficient in rotating assets so that the opportunity to earn a greater profit. With a high turnover rate of receivables, the risk of not repaying receivables becomes small because the refund embedded in the receivables quickly returns. In addition to cash and receivables, there are other elements of inventory.
Inventory is goods used or processed within the company's normal period (Arifin, A. Z., 2018:37).
Inventory is an asset that includes the company's goods to be sold within a certain business period.
Supplies are classified into 3, i.e. raw materials, semi-finished goods and finished goods. In manufacturing companies, the inventory of goods is an asset of the company, because the inventory of goods is the main income. Inventory turnover ratio is used to measure the company's efficiency in managing its inventory. The higher the turnover rate of inventory, the higher the profit earned.
Some similar studies with Return On Asset variables as dependent variables include Suprihatin, N.
S., &Nasser, E. (2016); Suryaputra, G. (2016); Santini, N. L. K. A., &Baskara, I. G. K. (2018);
Kusumo, C. Y., & Darmawan, A. (2018), Mohamad, N. E. A.B., &Saad, N.B.M. (2010). The difference between this research and the previous research period is from 2017 to 2019. Based on this description, the first hypothesis can be drawn up that cash turnover has a significant influence on Return On Asset in textile companies on the Indonesia Stock Exchange in the period 2017- 2019. The second hopotesis of receivables turnover has a significant influence on Return On Asset on textile companies on the Indonesia Stock Exchange in the 2017-2019 period. The third hypothesis is that inventory turnover has a significant influence on Return On Asset in textile companies on the Indonesia Stock Exchange in the period 2017-2019. Next the fourth hypothesis is that cash turnover, receivables turnover and inventory turnover have a simultaneous influence on Return On Asset on textile companies in the Indonesia Stock Exchange in the period 2017- 2019. With this hypothesis, the purpose of this study is to test and analyze the influence of cash turnover, receivable turnover and inventory turnover has a significant influence on Return On Asset on textile companies in the Indonesia Stock Exchange perode 2017-2019.
METHOD
This research uses quantitative research method by looking for associative relationships. This study analyzes and tests the theory of the value of research variables by using statistical methods to determine the relationship to those variables. Internal data used in the form of financial statements. External data sources come from previous research in the form of literature books, journals and thesis with variable cash turnover, receivable turnover, inventory turnover and Return On Asset. The population of this research is textile companies on the Indonesia Stock Exchange for the period 2017-2019. Sampling using purposive sampling so that the number of samples obtained as many as 48 companies. The determination of this research sample considers the following criteria: 1) Textile sector companies listed on the Indonesia Stock Exchange for the period 2017-2019. 2) The Company issues the financial statements required in this study, namely working capital in the form of cash turnover, receivable turnover and inventory turnover as well as Return On Assets obtained from the balance sheet and the full profit and loss statement in sequence during the period 2017-2019.
RESULTS AND DISCUSSION
Data normality testing using Kologorov Smirnov test with residual data criteria is said to be normal if the significant value is above 0.05 or 5%. The results of the data normality test using Kolmogorov Smirnov test showed that a significant value of 0.306 > 0.05 (5%), the data can meet the normality criteria so that the residual model is declared normal. In this study, multicolinearity test was measured by the fulfillment of criteria that VIF nila is not more than 10 and tolerance value is more than 0.1. Multicolinearity test results showed cash turnover resulted in a tolerance value of 0.810 > 0.1 and a VIF value of 1,234 < 10 so that the data model was free of multicolinearity or there was no correlation between free variables. Receivable turnover resulted in a tolerance value of 0.481 > 0.1 and a VIF value of 2,077 < 10 so that the data model was free of multicolinearity or there was no correlation between free variables. Inventory turnover resulted in a tolerance value of 0.458 > 0.1 and a VIF value of 2,183 < 10 so that the data model was free of multicolinearity or there was no correlation between free variables. Heteroskedastisitas test is conducted using Glejser test with the criteria that the significant value is above 0.05 then the whole data does not experience heteroskedastsitas or it can be said that the data has residual variant equations (homokedastisitas). Heteroskedastisitas test results showed that the significant value of each variable above 0.05 so that the model is free from symptoms of heteroskedastisitas or data is said to have the same variant (homoskedastisitas). This study used durbin watson test criteria as an autocorrelation test method. The results of the autocorrelation test using durbin watson test obtained Durbin Watson score of 1,320. The criteria for autocorrelation testing on Durbin Watson's value of 1,320 were located between -2 to 2 which had the conclusion that the model did not experience autocorrelation or residual symptoms had no association (correlation) with other observations compiled according to the timeline. It can be concluded that the test results in this study have passed the classic assumption test so that this research can be continued to be continued to multiple linear regression analysis.
Multiple Linear Regressions
Table 1. Multiple Linear Regressions
Unstandardized Coefficients Standardized Coefficients
B Std. Error Beta
(Constant) -0,029 0,022
Cash Turnover -0,001 0,000 -0,256
Receivables Turnover 0,005 0,002 0,422
Inventory Turnover 0,000 0,001 -0,076
Source: attachment 3.
Multiple linear regression analysis is used for the purpose of knowing the formulation of the influence of independent variables on dependent variables. Based on the results of the analysis obtained the formulation of multiple linear regression analysis models in this study as follows:
Y = -0,029 – 0,001X1 + 0,005X2 + 0,000X3 T test Results (Partial)
Table 2. T test Results (Partial)
T Sig. Information
(Constant) -1,338 0,188
Cash Turnover -1,685 0,099 No Significant Effect
Receivables Turnover 2,138 0,038 Significant Effect
Inventory Turnover -0,373 0,711 No Significant Effect
Dependent variable : Return On Asset Source: attachment 3.
The results of the partial t test of cash turnover has a calculated value of -1,685 smaller than the table t of 2,01290 and the inventory turnover had a calculated t value of -0,373 smaller than the table t of 2,01290 it can be concluded that the cash turnover and inventory turnover has no positive and significant effect on Return On Asset. The turnover of receivables has a calculated t value of 2,138 greater than the table t of 2,01290 and it can be concluded that the turnover of receivables has a positive and significant effect on Return On Asset in textile companies listed on Indonesia Stock Exchange for the period 2017-2019.
F test Results(Simultaneously)
Table 3. F test Results(Simultaneously)
F Sig. Information
Regression 3,100 0,036b Effect Simultaneously
Dependent variable : Return On Asset Source: attachment 3.
Simultaneous F test results showed a significance value of 0.036 less than the predetermined significance value of 0.05 and a calculated F value of 3,100 greater than the table F of 2.82 it can be concluded that the turnover of cash, receivables and inventories has a simultant effect on Return On Asset in textile companies listed on the Indonesia Stock Exchange for the period 2017- 2019.
Coefficient of Determination
The determination coefficient test aims to find out how much the model is capable of explaining independent variations to dependent variations. The determinationofisien test uses the Adjusted R square value. The test result of the coefficient of determination at adjusted R square value is 0.118 or 11.8%. This means that the variable effect of cash turnover ratio (X1), receivable turnover (X2) and inventory turnover (X3) on Return On Asset (Y) was 11.8% while the remaining 88.2% was influenced by other factors not included in this study. Such as net profit margin, total turnover of assets, net profit, sales, total cost and current assets.
Cash Turnover to Return On Asset
The cash turnover has no positive and significant effect on Return On asset in textile companies listed on the Indonesia Stock Exchange for the period 2017-2019. Cash turnover has no effect as the building's operating expenses increase. The addition of building maintenance and repair costs, increased salaries and employee benefits, as well as promotions and changes in employee status from contracts to fixed can reduce the company's cash. Average cash turnover increases annually.
This increase was followed by an increase in the cost of goods sold that increased, resulting in a decrease in the company's profit. Current assets in the form of cash and cash equivalents in textile companies decreased because the company spent a lot of money on the payment of the construction of subsidiaries' projects. Textile companies also experienced a decrease in revenue stemming from a decline in domestic sales caused by declining market demand for spinning. This is what makes cash turnover has no positive influence on Return On Asset
Turnover of Receivables to Return On Assets
The receivables turnover has positive and significant effect on Return On asset in textile companies listed on the Indonesia Stock Exchange for the period 2017-2019. The increase in receivables turnover can be caused by receivables collection and the use of capital in the company is used efficiently, the company is able to minimize bad loans and estimate receivables that are not collected properly so as not to interfere with the turnover of receivables in the company. High turnover of receivables can reduce management's risk in investing funds in the form of receivables.
This indicates that the increase in sales will be followed by cash receipts, where cash health conditions are used as a reference in determining the profitability of the company. Profitability of a company will increase if the turnover rate of receivables is high. This is because the possibility of uncollectible receivables is getting smaller and cash quickly returned to the company because it has been repaid by the customer. The results of this study reflect that the company invests working capital in receivables with optimal amounts so that no funds are idle because the funds are used for the company's operational activities so that sales are high and profits increase. This is what makes the turnover of receivables has a positive influence on Return On Asset.
Inventory Turnover to Return On Asset
The inventory turnover has no positive and significant effect on Return On asset in textile companies listed on the Indonesia Stock Exchange for the period 2017-2019. The low inventory turnover indicates that the company's profitability level is also low. This is because many supplies are not sold immediately at the time of procurement so it can cause losses for the company due to costs that must be incurred by the company such as storage and maintenance costs of inventory, as well as changes in consumer tastes. Losses to the company can provide a poor view by third parties so that external parties will turn to other companies that have a high level of profitability.
The decline in profitability in textile companies was due to the increase in the price of raw materials such as cotton and yarn. In addition, the supplies sold by textile companies are also seasonal, which means they do not always sell for a short period of time. The decline in garment exports makes the inventory in warehouses more and more so it takes a long time to sell the entire inventory in the warehouse. This is what makes inventory turnover has no positive effect on Return On Asset.
Cash Turnover, Receivables Turnover and Inventory Turnover to Return On Asset
The cash turnover, receivables and inventory has a simultant effect on Return On Asset in textile companies listed on the Indonesia Stock Exchange for the period 2017-2019. Increased sales volume, collectibility of receivables and export income of textile companies can increase the profitability of textile companies. Cash, receivables and inventories are components of working capital that play an important role in improving the profitability of the company. If the company can manage cash, receivables and inventory effectively then the working capital component can generate good profitability which means the amount of each cash turnover, receivables turnover and inventory turnover must be able to meet the company's operational activities in order for the company to profit and not experience financial difficulties. The working capital element that is well-controlled by the company as a whole can increase profitability. High turnover of working capital indicates the more productive working capital used, so that the company will profit faster.
High turnover of working capital can be caused by the high turnover rate of receivables that indicates the company is able to collect receivables quickly so as to increase profitability. High levels of sales in the company can also increase the profitability of a company. In addition, the effective use of cash can help companies maximize their cash to finance the productive sector so that profitability will increase. This is what makes cash turnover, receivable turnover and inventory turnover have a simultaneous influence on Return On Asset.
CONCLUSION
Based on the results of the analysis on the Effect of Working Capital Management on Return On Asset (Empirical Study on Textile Companies Listed on the Indonesia Stock Exchange Period 2017-2019) with the method of testing multiple linear regression analysis, partial and simultaneous testing can be concluded as follows : (1) Cash turnover shall have no positive and significant effect on Return On Assets in textile companies listed on the Indonesia Stock Exchange for the period
2017-2019; (2) The turnover of receivables shall have a positive and significant effect on the Return On Asset of textile companies listed on the Indonesia Stock Exchange for the period 2017- 2019; (3) the inventory Turnover is not positive and significant effect on Return On Assets on the textile companies listed in Indonesia stock Exchange period 2017-2019; (4) cash Turnover, accounts receivable turnover and inventory turnover effect simultaneously on Return On Assets on the textile companies listed in Indonesia stock Exchange period 2017-2019.
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