Analysis of working capital management in improving the financial performance

Abstract

Purpose – This study aims to examine the role of working capital management in enhancing the financial performance of PPJ, a state-owned regional enterprise in Indonesia.

Design/methodology/approach – This research employs a descriptive quantitative approach using financial data from 2021 to 2022. Financial ratios, particularly Return on Assets (ROA), are used as primary indicators of profitability, while working capital turnover, receivable management, and inventory control are analyzed to assess operational efficiency.

Findings – The results indicate that effective working capital management, particularly in controlling receivables and inventory, significantly improves the company's financial performance. A higher working capital turnover ratio positively affects profitability, as reflected in the increase in ROA. However, challenges persist, including an imbalance between fixed asset investments and working capital, which adversely affects the net working capital ratio during certain periods.

Originality/value – This study contributes to the limited literature on working capital management within state-owned regional enterprises in Indonesia. The findings provide practical insights for management to enhance operational efficiency and optimize asset utilization, thereby strengthening the company's financial sustainability and long-term performance.