Analysis of Working Capital Management in Improving Corporate Profitability

Abstract

Effective working capital management is a crucial aspect of corporate financial management, as it directly influences a company's liquidity, operational efficiency, and profitability. This study aims to analyze the role of working capital management in improving corporate profitability by examining the relationship between key working capital components, including accounts receivable, inventory, accounts payable, and the cash conversion cycle, with profitability indicators. The study adopts a quantitative research approach using secondary data obtained from the financial statements of selected companies over a specified period. Data are analyzed using descriptive statistics and multiple regression analysis to determine the effect of working capital management on corporate profitability. The findings indicate that efficient working capital management significantly contributes to higher profitability by reducing unnecessary financing costs, improving cash flow, and enhancing operational performance. In particular, a shorter cash conversion cycle and optimal management of receivables and inventory are associated with improved financial performance. The study concludes that companies should implement effective working capital management strategies to maintain financial stability and maximize profitability in an increasingly competitive business environment. The findings are expected to provide valuable insights for corporate managers, investors, and policymakers in formulating financial management strategies that support sustainable business growth.