ABSTRACT

Name : ADITYA ANGGA WIDJANARKO

NIRM : 216062002
Title : The Effect of Working Capital Toward Profitability at PT
Indofero Abadi Surabaya

Working capital is usually defined in terms of net working capital. Net working
capital is the difference between current assets and current liabilities. The study
aims to investigate wat so efficiently the working capital management of PT
Indofero Abadi at Surabaya and their effect on the firms’ performance.
Previous studies have studied the correlation between efficient working
capital management and profitability (e.g. Deloof 2003 and Shin & Soenen 1998).
This thesis will introduce the reader to different measures of working capital and
techniques of efficient working capital management. Previous studies in the area
have used either the cash conversion cycle (Deloof 2013) or the net trade cycle
(Shin & Soenen, 2013) as proxies for efficient working capital management. The
main reason of this thesis is to study how efficient working capital management
can improve company profitability and add shareholder value. The different
metrics and working management drivers will be studied with corporate
profitability in mind.
This research was conducted by taking financial data from the financial
section of PT Indofero Abadi at Surabaya in November of 2017. This research is
quantitative description of research. The subject in this study was PT Indofero
Abadi at Surabaya. The object examined i.e. balance sheets, cash flow reports and
financial reports on PT Indofero Abadi at Surabaya during 2012-2016 period
(final data). Then this study use Finacial Ratio as the data analysis technique,
especialy focused on Activity Ratio and Profitability Ratio.
By testing the two variables with corporate profitability, we can see that PT
Indofero Abadi at Surabaya during 2012-2016 period can increase their gross
operating profitability by reducing the cash conversion cycle and net trade cycle.
Also, the different components of the cash conversion cycle have been studied.
There is significant evidence that by effectively managing each part of working
capital, a company can increase the net present value of its cash flows, thus
adding to shareholder value.
The working capital Turnover as a whole can be said to be less good,
because it is under the General standard of the industry average that is 6 times.
Overall Cash Turnover can be said to be good, because it is above the General
standard the industry average that is 10 times. The Turnover of receivables as a
whole can be said to be good, because it is above the General standard the
industry average that is 7.2 times. Overall Inventory Turnover can be said to be
less good, because it is under the General standard of the industry average that is
3.4 times. Return On Investment (ROI) as a whole can be said to be good, because
it is above the General standard the industry average i.e. 5.08 times. In doing

ix
research on the management of working capital with a ratio analysis, there are
different limitations because researchers only examined the period in 2012 until
the year.

Keywords: Working Capital; Profitability; ROI.