Profitability of Food & Beverages Industry Sector in IDX: The
Impact of Working Capital Turnover
Ghazali Syamni
1*
, Ichsan
1
, Rasyimah
1
, Aiyub
1
, Husaini
1
1*
Faculty of Economics and Business, Universitas Malikussaleh, Banda Aceh, Indonesia
Keywords: The
working capital, profitability, turnover, IDX
Abstract: The purpose of this study is to examine effect of working capital on profitability of food and beverage
companies in Indonesia Stock Exchange. The data used in this study is secondary data from the
documentation of financial statements of food and beverages and the like companies during the period
2012-2016. This study differs from previous research since it applies all the variables of profitability ratios
generally applied. The results of the study find that independent variables of cash turnover, receivable
turnover and inventory turnoverall have their significant effect on the profitability ratios of the company
including ratios of return on asset, return on equity, net profit margin and gross profit margin. The model
chosen in this research is Random Effect Model. Statistically this study finds that the working capital
turnover negatively affect the return on equity partially or completely. However, working capital turnover
significantly affects overall ROA, NPM and GPM. Partially, turnover circulation affects return on assets and
receivable turnover affects gross profit margin. Both turnovers affect net profit margin. Lastly, no cash
turnover affects the profitability of food companies and beverages in the Indonesia Stock Exchange.
1 INTRODUCTION
Companies are commonly established with a goal of
achieving profitability. Any company will strive to
achieve optimum level of profit and maintain the
level of profit it has achieved. One of the ways in
which managers of the company perform in order to
keep the level of profit steady is to manage the
company's working capital. Hanafi (2004) claimed
nearly 60 per cent of managers prepare time in
managing working capital in a company despite their
work in cash planning, receivable and supplies.
Thus, it was necessary for a company to plan a
rational and efficient working capital management,
not vice versa, Zeidan and Shapir (2017).
Working capital policy is an important policy
needed to be done by company managers in addition
to funding decisions, investment and dividend pay-
out (Masri and Abdulla (2017). Mun and Jang
(2015)
Mentioned that working capital as one of the factors
that influence Food Company’s value.
Several previous studies on relations of working
capital with profitability in industrial and enterprise
sectors have been conducted providing various
results. Baños-Caballero et al. (2014)study on non-
financial firms in the UK stated that the optimal
working capital level for finite-financed firms was to
have lower working capital. In Finland, Enqvist et
al. (2014)disclosed working capital management
was problematic if not efficiently done in corporate
financial planning in accordance with environmental
conditions. In Norway,Hakim and Terje (2016)
mentioned that there was a relationship between
working capital of SMEs with profitability
particularly when cash cycles were accelerated.Mun
and Jang (2015). In American restaurant companies
and Anna-Maria et al. (2016) in Helsinki disclosed
working capital related to profitability but highly
dependent on the use and various strategies in
improving the company's profitability by managers
on the company.
Various researches in Asia and Africa (Egypt,
Kenya, Nigeria and South Africa) on working
capital have also been done with different results. In
India, Bhatia and Srivastava (2016) research in 179
companies, including the Bombay 500, displayed a
negative relationship between working capital and
profitability.
Altaf and Shah (2017) proved a relationship
between working capital and profitability even
though U is inverted. Companies with limited
Syamni, G., Ichsan, ., Rasyimah, ., Aiyub, . and Husaini, .
Profitability of Food Beverages Industry Sector in IDX: The Impact of Working Capital Turnover.
DOI: 10.5220/0009899400002480
In Proceedings of the International Conference on Natural Resources and Sustainable Development (ICNRSD 2018), pages 153-157
ISBN: 978-989-758-543-2
Copyright
c
 2022 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
153

financial capital employed lower working capital as
optimal as possible. Madhou et al. (2015)claimed
that working capital affect the profitability of the
company but highly dependent on the company's
characteristic’s, sometimes adjustment for more or
less capital needed to be made. Öztürk and Vergili
(2018) said that sales growths as well as collection
period affect return on assets while company size
has negative effect. Meanwhile, debt, cash cycle,
receivable period places no effect on profitability of
mining companies in Turkey.
Research in Pakistan by Tahir and Anuar (2016)
on textile companies found that working capital had
the most effect on the profitability of the company,
but in its implementation effectiveness was required
in order to achieve profitability. Research in Africa;
Ukaegbu (2014) showed working capital was
negatively related to profitability due to industrial
typology where cash cycle cash conversion cycle
increases hence lower the profitability. While in
Egypt, Eldomiaty et al. (2016) focusing on
nonfinancial firms explained that cash conversion as
the most important working capital variable to
improve profitability.
In Iran, Jamalinesari and Soheili (2015) claimed
that in planning an efficient working capital, the
role of good corporate governance was important in
order to achieve profitability. In Malaysia, Kasiran
et al. (2016) said that SMEs in Malaysia were still
less efficient in managing working capital.
Wasiuzzaman (2015) supported that the value of
limited capital companies would increase by
managing working capital efficiently, however, this
was not the case for larger financial capital
companies. And, Zariyawati et al. (2016) proposed a
need for corporate managers to take a smart decision
in managing the company by considering the
condition of the company. But Shaista (2015)
working capital was negative impact to profitability.
In Indonesia, Adam and Shauki (2014) research
in food and beverage companies stated that working
capital affected the value of investment. Sari (2018)
mentioned that working capital had not effectively
affected the return on investment in plantation
companies.Ramadhan et al. (2018) claimed that
working capital affected return on assets in mining
companies. While Dewi and Prasetyo (2017)
working capital inventory affected return on assets
in e textile and sharia garment companies. In the
fertilizer company by Mulyono et al. (2018) stated
that all working capital components affect the
fertilizer company's return asset. WhileWijaya and
Tjun (2018) showed not all components of working
capital, i.e., cash and inventory turnover affecting
return on assets in food and beverage companies.
The same is true for pharmaceutical companies,
Wau (2017) that cash turnover and receivable did
not affect return on assets. Inventory turnover
influenced return on assets.
Having discussed several researches, it could be
stated that inefficiency in managing working capital
affects profitability in certain industrial sectors. In
fact, there were also results of research that found no
effect of working capital variables on profitability.
Therefore, this study was conducted with the
purpose of testing the effect of working capital
turnover on the profitability of food, beverage and
other similar companies. However, this study differs
by using four dependent variables as proxy of
profitability, i.e. return on asset, and return on
equity, net profit margin and gross profit margin.
The use of the four proxies of profitability ratios was
applied as a form to complement the previous
research deficiencies which use only one or two
dependent variables as profitability variables. In
addition, variable net profit margin and gross profit
margin were included since food and beverages
companies generally prioritize sales.
2 METHOD
The data used in this study is the documentation data
from the financial statements of Food & Beverages
industry in Indonesian Stock Exchange in the period
2012-2016. In that period, there were 11 Food &
Beverages industry companies that provided data
qualified to be used in this research. From the data,
fifty five observations were made consisting of 5
years and 11 companies. Thus, the model in this
study is a panel regression model. Thus, the research
model is:
ROA
it
= β0+ β1Cash
it
+ Β2 Receivable
it
+
β3Inventory
it
+ ε
it
ROE
it
= β0+ β1Cashit + Β2 Receivable
it
+
β3Inventory
it+
εit
GPM
it
=β0+ β1Cash
it
+Β2 Receivable
it
+
β3Inventory
it
+εi
NPM
it
= β0 + β1Cash
it
+ Β2
Receivable
it
+β3Inventory
it
+εit
Where, ROA, ROE, NPM and GPM are return
on assets, return on equity, net profit margin and
gross profit margin. β is the coefficient, Cash,
Receivable and Inventory are (cash turnover,
receivable turnover, inventory turnover), i is the
company name and t is the period of time.
Furthermore, having used panel regression, this
study selected model of Common Effect Model
ICNRSD 2018 - International Conference on Natural Resources and Sustainable Development
154

(CEM), Fixed Effect Model (FEM) and Random
Effect Model (REM). The best model selection is
determined by doing Chow test, Hausman test.
Chow test is performed to select CEM with FEM.
The best model is determined by the probability
significance of chi square, if the significance value is
<0.05 then the best model is FEM, otherwise if the
significance value is> 0.05 then the best model is
CEM and no need to proceed with Hausman test.
Hausman test is performed with the aim of selecting
FEM with REM. If the value of chi square is
significant <0.05, then the best model is FEM,
otherwise if not significant 0.05 then the best model
is REM, Baltagi et al. (2003) and Zariyawati et al.
(2016).
3 RESULT
Prior to the discussion of panel regression results,
the selection of models used in this study would be
explained, CEM, FEM and REM. The testing result
of the influence of working capital turnover on
profitability in food and Beverages Company in
Indonesia Stock Exchange can be seen in Table 1a
and 1b below.
Table 1a: Influence of working capital turnover to
profitability (Cont'd)
Coefficient
NPM GPM
CEM FEM REM CEM FEM REM
C
16.347
***
10.215
***
12.387
***
40.508
***
37.492
***
37.487
***
Cash
Turnover
-0.065
***
0.195 00.31
-0.154
***
-0.023 -0.039
Receivable
Turnover
-0.623
**
-0.704
***
-0.690
***
-1.427
***
-1.155
***
-1.154
***
Inventory
Turn over
-0.018
0.5177
**
0.315
*
0.548
*
1.441 1.809
R2 1.897 5.973 1.239 2.088 6.525 1.726
F-Statistic 63.966
19.405
***
3.694
**
7.313
***
49.161
***
5.626
***
Chow test
0.000
***
0.000
***
Hausman
test
0.872 4.572
Note: *** as significant 1 %, ** as significant 5% and *
significant 10%.
As mentioned earlier in the research method,
Chow Test and Hausman Test were conducted in
choosing the research model is done whether in
equation 1.2.3 and 4. In the Chow Test stage, in all
models of panel regression, whether equations 1, 2,
3 and 4, showed that probability value significant chi
square <0.05 i.e. 0.000. It can be explained that all
models 1, 2, 3 and 4 selected the model of fixed
effect model equation. Since Chow test value is
significantly below 0.05 or 0.000, a further testing
step is necessary Hausman test. The Hausman test is
performed aiming to select fixed effect and random
effect model in each 1, 2, 3 and 4 model. Based on
Hausman test it is found that in the first model the
chi square probability value is not significant at the
5% level i. e. 0.0799. From equation models 2, 3 and
4 significance probability values were found of
0.7419, 0.1257 and 0.7419 or all at a significance
level of 10% meaning not significant 5%. Thus, the
best model of this research is random effects model
Baltagi et al. (2003).
Table 1b: Influence of working capital turnover to
profitability
Coefficient
NPM GPM
CEM FEM REM CEM FEM REM
C
16.347
***
10.215
***
12.387
***
40.508
***
37.492
***
37.487
***
Cash
Turnover
-0.065
***
0.195 0.31
-0.154
***
-0.023 -0.039
Receiveble
Turnover
-0.623
**
-0.704
***
-0.690
***
-1.427
***
-1.155
***
-1.154
***
Inventory
Turn over
-0.018
0.517
**
0.315
*
0.548
*
1.441 1.809
R
2
1.897 5.973 1.239 2.088 6.525 1.726
F_Statistic 63.966
19.405
***
3.694
**
7.313
***
49.161
***
5.626
***
Chow test 0.000*** 0.000***
Hausman
test
0.872 4.572
Note: *** as significant 1 %, ** as significant 5% and *
significant 10%.
Having selected the models, it is decided to
apply REM which result the equations as follows:
ROA= 5.676*- 0.011Cash–0.119 Receivable+ 0.612
Inventory***
ROE=11.885**-0.010Cash+0.195Receivable+ 0.223
Inventory
NPM=12.387***+0.003Cash-0.690
Receivable***+0.315Inventory*
GPM=37.487***-0.039Cash–1.154Receivable***+ 0.260
Inventory
Based on Tables 1a and 1b it can be explained,
except for ROE, other dependent variables, ROA,
NPM and GPM can be explained by other
independent variables such as cash turnover,
receivable turnover and inventory turnover which is
strikingly low. This is reflected in the value of
coefficient of determination, each at 18.44 per cent,
17,85 per cent and 24,86 per cent. However, the
ability of variable cash turnover, receivable turnover
and inventory turnover in explaining their effects on
return on equity is also at the low level i.e. 22.35 per
cent.
The results of panel regression equation in table
1a and 1b explain how the profitability of food
Profitability of Food Beverages Industry Sector in IDX: The Impact of Working Capital Turnover
155

companies and beverages in Indonesia Stock
Exchange is more determined by the turnover of
working capital, especially receivable turnover and
inventory turnover in raising profitability. It can be
concluded from variables that have significance to
return on asset is inventory turnover. The variables
affecting net profit margin are receivable turnover
and inventory turnover while gross profit margin is
more determined by receivable turnover.
The first variable affecting ROA is inventory
turnover with coefficient value of 0.6127. This
means that if the inventory turnover is accelerated
10 points it will raise the profit advantage amounted
to 6.127 points. This finding is consistent with
Mulyono et al. (2018) who stated a need to
accelerate inventory and accelerate payments. All
acceleration of working capital management should
lead to improved profitability (Tahir and Anuar,
2016). The two variables affecting NPM are the
receivable turnover and inventory turnover
respectively with coefficient values -0.6902 and
0.3156, while the variables affecting GPM are
receivable turnover with coefficient - 1.1541. This
figure can be interpreted that if the turnover of
accounts receivable is conducted by 10 points faster
than corporate profits will be decreased by 6,902
points. Meanwhile, if the company can increase its
inventory turnover by 10 points, the company's
profit will rise by 3,156 points.
The same thing happened to GPM in which if the
receivable turnover increase by 10 points then it can
lower the profit rate by 11,541 points. This finding is
consistent with that of Baños-Caballero et al. (2014)
which mentioned that it was advisable that the
company manager avoid sales loss and discounted
policies if early repayments were made to maintain
corporate performance. Enqvist et al. (2014)
explained a need for efficient inventory and
inventory management to improve the profitability
of the company. In addition, the results of this study
are in accordance with Wasiuzzaman (2015) who
claimed existence of negative effects of all
components of working capital on profitability.
Nevertheless, the above equation models explain
that among the components of working capital
turnover, only cash turnover that have no effect on
profitability in food companies and beverages in the
Indonesia Stock Exchange. According toHakim and
Terje (2016), this proved that the cash conversion
cycle was not in a good condition which causes no
impact on profitability. These findings indicate that
cash turnover is still inefficiently managed by the
management of food and beverages companies in the
Indonesia Stock Exchange. However, Eldomiaty et
al. (2016) proposed different result. The cash
turnover was claimed as most important in working
capital management in improving profitability.
Another finding in this research is that the working
capital turnover component is not related to return
on equity in food companies and beverages in
Indonesia Stock Exchange. This is clearly seen in
the results of panel regression where the two
components displayed insignificant value both
partially and simultaneously. These findings indicate
that investors are negligent on the management of
their working capital and handing over the
management of working capital entirely to the
management of the company.
4 CONCLUSIONS
The findings of this study indicate that corporate
governance mechanisms play an essential role in
improving working capital efficiency in companies
including food companies and beverages. This is in
line with what is revealed by Jamalinesari and
Soheili (2015) that good corporate governance
provides efficiency for the company which will
contribute better returns. On the contrary, the results
of this study explain that all variables of working
capital turnover both cash turnover, receivable
turnover and inventory turnover used in this study
place no significant effect on the dependent variable
return on asset.
These findings indicate that investors
acknowledge that working capital turnover is
inseparable from food and beverages industry.
Working capital turnover is performed with the aim
of avoiding occurrences of food or drink
accumulation thus resulting in profits loss. Hence,
the investors are not anticipating a profit from this
working capital turnover despite, theoretically,
working capital turns profit at other ratios. In
general, not all working capital turnover variables
affect other profitability variables whether return on
asset, net profit margin and gross profit margin.
ACKNOWLEDGEMENTS
Thanks to the post-graduate program faculty of
economics and business Malikussaleh University on
the registration fee for proceedings in ICNSRD
ICNRSD 2018 - International Conference on Natural Resources and Sustainable Development
156

REFERENCES
Adam, A.A., Shauki, E.R., 2014. Socially responsible
investment in Malaysia: behavioral framework in
evaluating investors' decision making process. Journal
of Cleaner Production 80: 224-240.
Altaf, N., Shah, F., 2017. Working capital management,
firm performance and financial constraints: Empirical
evidence from India. Asia-Pacific Journal of Business
Administration 9: 206-219.
Anna-Maria, T., Timo, K., Miia, P., Sari, M., 2016.
Defined strategies for financial working capital
management. International Journal of Managerial
Finance 12: 277-294.
Baltagi, B.H., Bresson, G., Pirotte, A., 2003. Fixed effects,
random effects or Hausman–Taylor?: A pretest
estimator. Economics letters 79: 361-369.
Baños-Caballero, S., García-Teruel, P.J., Martínez-Solano,
P. 2014. Working capital management, corporate
performance, and financial constraints. Journal of
Business Research 67: 332-338.
Bhatia, S., Srivastava, A., 2016. Working Capital
Management and Firm Performance in Emerging
Economies: Evidence from India. Management and
Labour Studies 41: 71-87.
Dewi, R. A. K., Prasetyo, A., 2017. DAR dan perputaran
persediaan serta pengaruhnya terhadap profitabilitas
perusahaan tekstil dan garmen yang terdaftar di Indeks
Saham Syariah Indonesia. Jurnal Ekonomi Syariah
Teori dan Terapan, 3, 520.
Eldomiaty, T.I., Rashwan, M.H., Bahaa el Din, M., Tayel,
W., 2016. Firm, industry and economic determinants
of working capital at risk. International Journal of
Financial Engineering 03, 1650031.
Enqvist, J., Graham, M., Nikkinen, J., 2014. The impact of
working capital management on firm profitability in
different business cycles: Evidence from Finland.
Research in International Business and Finance 32:
36-49.
Hakim, L., Terje, B., 2016. Working capital management:
evidence from Norway. International Journal of
Managerial Finance, 12: 295-313.
Hanafi, M.M., 2004. Manajemen keuangan, BPFE.
Yogyakarta.
Jamalinesari, S., Soheili, H., 2015. The Relationship
between the Efficiency of Working Capital
Management Companies and Corporate Rule in
Tehran Stock Exchange. Procedia - Social and
Behavioral Sciences 205: 499-504.
Kasiran, F.W., Mohamad, N.A., Chin, O., 2016. Working
Capital Management Efficiency: A Study on the Small
Medium Enterprise in Malaysia. Procedia Economics
and Finance, 35: 297-303.
Madhou, A., Moosa, I., Ramiah, V., 2015. Working
Capital as a Determinant of Corporate Profitability.
Review of Pacific Basin Financial Markets and
Policies 18, 1550024.
Masri, H., Abdulla, Y., 2017. A multiple objective
stochastic programming model for working capital
management. Technological Forecasting and Social
Change.
Mulyono, S., Djumahir, D., Ratnawati, K., 2018. The
effect of capital working management on the
profitability. Jurnal Keuangan dan Perbankan 22: 94-
102.
Mun, S.G., Jang, S.C., 2015. Working capital, cash
holding, and profitability of restaurant firms.
International Journal of Hospitality Management 48:
1-11.
Öztürk, M. B., Vergili, G., 2018. The Effects of Working
Capital Management on Mining Firm’s Profitability:
Empirical Evidence from an Emerging Market.
In:Kucukkocaoglu, G. & Gokten, S. (eds.) Financial
Management from an Emerging Market Perspective.
Rijeka: InTech.
Ramadhan, R.R., Hasan, A., Efni, Y., 2018. Pengaruh
working capital management terhadap profitabilitas
pada perusahaan dengan firm size, operating leverage,
dan current ratio sebagai variabel kontrol (studi pada
perusahaan sektor pertambangan di Bursa Efek
Indonesia). Jurnal Tepak Manajemen Bisnis 9: 122-
137.
Sari, R.A. 2018. Analisis manajemen modal kerja dalam
meningkatkan profitabilitas pada PT. Perkebunan
nusantara III (Persero). Jurnal Riset Akuntansi dan
Bisnis 17: 33-45.
Shaista, W., 2015. Working capital and firm value in an
emerging market. International Journal of Managerial
Finance 11: 60-79.
Tahir, M., Anuar, M.B.A., 2016. The determinants of
working capital management and firms performance of
textile sector in pakistan. Quality & Quantity 50: 605-
618.
Ukaegbu, B., 2014. The significance of working capital
management in determining firm profitability:
Evidence from developing economies in Africa.
Research in International Business and Finance 31: 1-
16.
Wasiuzzaman, S., 2015. Working Capital and Profitability
in Manufacturing Firms in Malaysia: An Empirical
Study. Global Business Review 16: 545-556.
Wau, R., 2017. Analisis efektifitas modal kerj a dan
pengaruhnya terhadap profitabilitas. Journal of
Business Studies 2: 61-74.
Wijaya, L.V., Tjun, L.T., 2018. Pengaruh cash turnover,
receivable turnover, dan inventory turnover terhadap
return on asset perusahaan sektor makanan dan
minuman yang terdaftar di Bursa Efek Indonesia
Periode 2013–20155. Jurnal Akuntansi Maranatha 9:
74-82.
Zariyawati, M., Annuar, M., Pui-San, N., 2016. Working
capital management determinants of small and large
firms in Malaysia. International Journal of Economics
& Management 10: 365-377.
Zeidan, R., Shapir, O.M., 2017. Cash conversion cycle and
value-enhancing operations: Theory and evidence for a
free lunch. Journal of Corporate Finance 45: 203-219.
Profitability of Food Beverages Industry Sector in IDX: The Impact of Working Capital Turnover
157