The Impact of Working Capital Management on Financial Performance, Evidence from Automotive & Components Industry

Abstract

This study aims to examine and analyze the impact of Working Capital Management by measuring the Days Inventory Oustanding (DIO), Days Sales Outstanding (DSO), and Days Payable Oustanding (DPO) on Return on Assets (ROA) in automotive and component sub-sector firms listed on the IDX from 2011 to 2021. The sampling technique employed was a purposive sample of 11 businesses with 121 observations for 2011-2021 in the IDX-listed automotive and component sub-sectors. Panel data regression using the Common Effect Model is the method of analysis used. The results of this study reveal that the DIO and DPO have a significant negative effect on ROA, whereas the DSO has a positive effect. It is recommended that, while formulating optimal capital budgeting practices, businesses consider Working Capital Management. This paper's findings may help firm managers optimize their working capital management practices. The study's identification of working capital management as a substantial influence on firm profitability can interest policymakers.