Working Capital Management and Profitability: Evidence from Manufacturing Firms Listed on the Indonesia Stock Exchange

Abstract

This study examines the effect of working capital management, proxied by the cash conversion cycle (CCC), on the profitability of manufacturing firms listed on the Indonesia Stock Exchange (IDX). Working capital efficiency directly shapes the liquidity-profitability trade-off, yet recent sector-specific evidence from Indonesia's post-pandemic period remains scarce. This study specifies profitability (ROA) as a function of CCC, firm size, leverage, and sales growth. Using purposive sampling, a panel of 78 manufacturing firms listed on the IDX for the 2019–2023 period was analyzed (390 firm-year observations), estimated with a Fixed Effect panel regression model selected via the Chow and Hausman tests. Results indicate that the cash conversion cycle has a significant negative effect on profitability (β = -0.087, p < 0.01), firm size has a significant positive effect (β = 0.041, p < 0.05), and leverage has a significant negative effect (β = -0.156, p < 0.01), while sales growth is not a significant predictor. The findings confirm operating-cycle theory and indicate that shortening the cash conversion cycle is a controllable, non-financing lever for improving manufacturing-firm profitability. Financial managers are encouraged to tighten inventory turnover, receivables collection, and payables policy as a coordinated working capital strategy.