The Effect Of Working Capital Turnover, Permanent AKITVA Investment, And Return Spread On Company Liquidity: Studies In The Consumer Goods Industry That Go Public In Indonesia.

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The Effect of Working Capital Turnover, Permanent AKITVA Investment, and Return Spread on Company Liquidity: Studies in the Consumer Goods Industry that Go Public in Indonesia

Introduction

In the fast-paced and competitive consumer goods industry, maintaining a healthy level of liquidity is crucial for companies to fulfill their short-term obligations and take advantage of market opportunities. However, managing liquidity can be a challenging task, especially for companies that are listed on the Indonesian stock exchange. This study aims to analyze the significant effects of working capital turnover, fixed asset investment, and return spread on the liquidity of consumer goods companies listed on the Indonesian stock exchange.

Literature Review

Working capital turnover is a measure of how efficiently a company uses its current assets to generate income. It is an important indicator of a company's ability to manage its working capital effectively. A high working capital turnover ratio indicates that a company is able to generate income from its current assets quickly, which can lead to improved liquidity. On the other hand, fixed asset investment is a long-term investment that can provide a foundation for expansion and increase in production capacity. However, this type of investment may not have a direct impact on a company's liquidity, as it is not easily convertible into cash to meet short-term obligations.

Return spread, which is the difference between the yields of assets and capital costs, is an important indicator of a company's profitability. However, its effect on company liquidity may be more complex and depends on other factors that are not calculated in this study. A high return spread may indicate that a company is generating high returns from its investments, but it may not necessarily translate to improved liquidity.

Methodology

This study uses a causal research design with a sample of 33 companies from 35 consumer goods companies listed on the Indonesia Stock Exchange (IDX) during the 2005-2007 period. The data used in this study are secondary data obtained from the Indonesian Capital Market Directory and the official IDX website at www.idx.co.id. Before conducting the hypothesis test, the data were processed with classical assumption tests. The hypothesis test was carried out using multiple linear regression with the T test and the F test at a significance level of 5% (α = 0.05).

Results

The results of this study showed that, partially, working capital turnover had a significant effect on company liquidity. This means that companies that are able to manage their working capital well will be more liquid, so that they can pay short-term obligations more easily. However, fixed asset investment and return spread did not have a significant effect on liquidity. When viewed simultaneously, working capital turnover, fixed asset investment, and return spread have a significant influence on liquidity.

In-Depth Analysis

Company liquidity is the company's ability to fulfill its short-term obligations with assets owned. In the context of the consumer goods industry that go public, effective working capital management is very important. Working capital turnover measures how efficiently the company uses current assets to generate income. The results of this study confirm that companies that are able to manage their working capital well will be more liquid, so that they can pay short-term obligations more easily.

On the other hand, fixed assets investment functions as a foundation for expansion and increase in production capacity. However, this study shows that fixed assets investment has no significant effect on liquidity. This may be caused by the fact that fixed assets are long-term assets that cannot be quickly disbursed into cash to meet short-term obligations. Therefore, companies need to focus more on their working capital management compared to relying on long-term investment.

Return spread, which is the difference between the yields of assets and capital costs, also does not have a significant impact on the company's liquidity in this study. This shows that although return spread is important in the context of profitability, its effect on company liquidity may be more complex and depends on other factors that are not calculated in this study.

Conclusion

This research provides valuable insight to company management in the consumer goods sector. Knowing the importance of working capital turnover can help companies formulate a better strategy to maintain a healthy level of liquidity. Thus, companies can be more prepared in facing challenges and taking advantage of existing market opportunities. In the future, this research is expected to trigger further studies that include other factors that have the potential to influence company liquidity, as well as deepen the analysis of the relationship between existing variables.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Companies in the consumer goods industry should focus on managing their working capital effectively to maintain a healthy level of liquidity.
  2. Companies should not rely solely on long-term investment, such as fixed asset investment, to improve their liquidity.
  3. Companies should consider other factors that may influence their liquidity, such as return spread, and conduct further research to deepen the analysis of the relationship between existing variables.

Limitations

This study has several limitations that should be noted. Firstly, the sample size is relatively small, with only 33 companies from 35 consumer goods companies listed on the IDX. Secondly, the data used in this study are secondary data obtained from the Indonesian Capital Market Directory and the official IDX website, which may not be up-to-date or accurate. Finally, the study only focuses on the consumer goods industry and may not be generalizable to other industries.

Future Research Directions

This study provides a foundation for further research in the area of company liquidity. Future studies could include:

  1. Investigating the effect of other factors, such as return spread, on company liquidity.
  2. Conducting a deeper analysis of the relationship between working capital turnover and company liquidity.
  3. Examining the impact of company liquidity on financial performance and market value.

By conducting further research in this area, companies and researchers can gain a better understanding of the factors that influence company liquidity and develop strategies to improve liquidity and financial performance.
Frequently Asked Questions (FAQs) about the Effect of Working Capital Turnover, Permanent AKITVA Investment, and Return Spread on Company Liquidity

Q: What is working capital turnover, and how does it affect company liquidity?

A: Working capital turnover is a measure of how efficiently a company uses its current assets to generate income. A high working capital turnover ratio indicates that a company is able to generate income from its current assets quickly, which can lead to improved liquidity.

Q: Why is working capital management important for companies in the consumer goods industry?

A: Effective working capital management is crucial for companies in the consumer goods industry because it enables them to fulfill their short-term obligations and take advantage of market opportunities. Companies that are able to manage their working capital well will be more liquid, so that they can pay short-term obligations more easily.

Q: What is the difference between fixed asset investment and working capital investment?

A: Fixed asset investment is a long-term investment that can provide a foundation for expansion and increase in production capacity. Working capital investment, on the other hand, is a short-term investment that is used to finance a company's day-to-day operations.

Q: Why did the study find that fixed asset investment did not have a significant effect on company liquidity?

A: The study found that fixed asset investment did not have a significant effect on company liquidity because fixed assets are long-term assets that cannot be quickly disbursed into cash to meet short-term obligations.

Q: What is return spread, and how does it affect company liquidity?

A: Return spread is the difference between the yields of assets and capital costs. While return spread is an important indicator of a company's profitability, its effect on company liquidity may be more complex and depends on other factors that are not calculated in this study.

Q: What are the implications of the study's findings for companies in the consumer goods industry?

A: The study's findings suggest that companies in the consumer goods industry should focus on managing their working capital effectively to maintain a healthy level of liquidity. Companies should not rely solely on long-term investment, such as fixed asset investment, to improve their liquidity.

Q: What are the limitations of the study, and how can they be addressed in future research?

A: The study has several limitations, including a relatively small sample size and the use of secondary data. Future research could address these limitations by using a larger sample size and collecting primary data.

Q: What are some potential future research directions in the area of company liquidity?

A: Some potential future research directions include investigating the effect of other factors, such as return spread, on company liquidity, conducting a deeper analysis of the relationship between working capital turnover and company liquidity, and examining the impact of company liquidity on financial performance and market value.

Q: How can companies use the findings of this study to improve their liquidity and financial performance?

A: Companies can use the findings of this study to improve their liquidity and financial performance by focusing on managing their working capital effectively, avoiding reliance on long-term investment, and considering other factors that may influence their liquidity.