Impact of customer default on cash conversion cycle and net working capital in construction company

Published: Dec 5, 2024

Abstract:

Purpose: This study aimed to determine the effect of customer default on the Cash Conversion Cycle and Net Working Capital in construction companies.

Method: This study uses secondary data from companies’ financial reports to calculate the Cash Conversion Cycle, Net Working Capital, and Spearman's rho Correlation Test to determine the relationship between the two variables.

Results: The results show that SOE customer default affects the condition of the Cash Conversion Cycle, especially in 2023, where the Cash Conversion Cycle value in Q123 (85 days) and Q223 (64 days), but the worst Cash Conversion Cycle results during the observation period are in Q122 (134 days). In Net Working Capital, there are only three periods with negative results: Q219 (-3.1B), Q319 (-461M), and Q421 (-4B), but not in 2023, because in 2023, the result is positive (or liquid). Spearman's rho Correlation Test shows that the relationship between the two variables is negatively correlated by -0.319, and the significance is 0.184, or the two variables are not significant.

Limitations: This study was limited to construction companies in Bandung. The data taken from 2019 to Q3-2023 only focus on the influence of SOE customer defaults on the company's Cash Conversion Cycle and Net Working Capital.

Contribution: This study provides the best solution to the problem of customer default in the Cash Conversion Cycle and Net Working Capital in a construction company. If the solution is applied to the company, an implementation plan is created to fix the problem.

Keywords:
1. Cash Conversion Cycle
2. Net Working Capital
3. SOE’s customer
4. Customer Default
Authors:
1 . Maya Maesaroh
2 . Taufik Faturohman
How to Cite
Maesaroh, M., & Faturohman, T. (2024). Impact of customer default on cash conversion cycle and net working capital in construction company. International Journal of Financial, Accounting, and Management, 6(3), 313–331. https://doi.org/10.35912/ijfam.v6i3.2120

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References

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    Anagnostopoulou, S. C. (2012). Working capital management and firm listing status. Multinational Finance Journal, 16(3/4), 261-301.

    Chigora, F., Kapesa, T., & Svongoro, P. (2021). Revisiting nation branding: An infrastructure financing perspective in Zimbabwe. International Journal of Financial, Accounting, and Management, 3(2), 179-192.

    Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance & accounting, 30(3?4), 573-588.

    Dirgantara, H. (2022). Daya Tarik ADHI Terganjal Utang. Retrieved from https://insight.kontan.co.id/news/daya-tarik-adhi-terganjal-utang

    Egbunike, C. F., & Oranefo, P. C. (2023). Macroeconomic factor, firm characteristics and inventory holding in Nigeria: A quantile regression approach. International Journal of Financial, Accounting, and Management, 5(1), 1-17.

    Emongor, E. N. (2023). The Tacticality of Working Capital. Valley International Journal Digital Library, 5365-5369.

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    Fransisca, C., Shalahuddin, A., Wendy, W., Giriati, G., & Hasanudin, H. (2023). The influence of cash conversion cycle, capital structure, and liquidity on profitability with firm size as moderation. International Journal of Applied Finance and Business Studies, 11(3), 528-534.

    Hayundaniswara, A., & Faisal, F. (2022). PENGARUH MANAJEMEN MODAL KERJA TERHADAP KINERJA PERUSAHAAN SEKTOR NON KEUANGAN. APSSAI ACCOUNTING REVIEW, 2(1), 1-12.

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    Owolabi, S. A., & Alu, C. N. (2012). Effective working capital management and profitability: A study of selected quoted manufacturing companies in Nigeria. Economics and Finance Review, 2(6), 55-67.

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    Saunders, M., Lewis, P., & Thornhill, A. (2023). Research Methods for Business Students: Pearson.

    Schindler, P. (2022). Business Research Methods (14th ed.): McGraw Hill.

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    Yilmaz, I., & Acar, G. (2019). The effect of cash conversion cycle on profitability in Omani companies. International Journal of Economics, Management and Accounting, 27(2), 269-290.

    Zeidan, R., & Shapir, O. M. (2017). Cash conversion cycle and value-enhancing operations: Theory and evidence for a free lunch. Journal of Corporate Finance, 45, 203-219.

    Zutter, C., & Smart, S. (2021). Principles of Managerial Finance [Global Edition] 16th Edition: Pearson.

  1. Abuzayed, B. (2012). Working capital management and firms’ performance in emerging markets: the
  2. case of Jordan. International Journal of Managerial Finance. 8(2), 155–179. https://doi.org/https://doi.org/10.1108/17439131211216620
  3. Adiwibowo, K. H. (2021). THE EFFECT OF CASH CONVERSION CYCLE FACTORS ON PROFITABILITY (Study on Manufacturing Sector Companies Listed on Indonesia Stock Exchange). Jurnal Ilmiah Mahasiswa FEB, 9(2).
  4. Ahdiat, A. (2022). BUMN Dominasi proyek infrastruktur Terbesar RI pada 2020. Katadata. co. id. Dikutip dari https://databoks. katadata. co. id/datapublish/2022/06/29/bumn-dominasi-proyek-infrastruktur-terbesar-ri-pada-2020.
  5. Al-Mohareb, M. (2019). Cash Conversion Cycle and Profitability, Evidence from Jordan. Asian Journal of Finance & Accounting, 11(2), 81-95.
  6. Anagnostopoulou, S. C. (2012). Working capital management and firm listing status. Multinational Finance Journal, 16(3/4), 261-301.
  7. Chigora, F., Kapesa, T., & Svongoro, P. (2021). Revisiting nation branding: An infrastructure financing perspective in Zimbabwe. International Journal of Financial, Accounting, and Management, 3(2), 179-192.
  8. Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance & accounting, 30(3?4), 573-588.
  9. Dirgantara, H. (2022). Daya Tarik ADHI Terganjal Utang. Retrieved from https://insight.kontan.co.id/news/daya-tarik-adhi-terganjal-utang
  10. Egbunike, C. F., & Oranefo, P. C. (2023). Macroeconomic factor, firm characteristics and inventory holding in Nigeria: A quantile regression approach. International Journal of Financial, Accounting, and Management, 5(1), 1-17.
  11. Emongor, E. N. (2023). The Tacticality of Working Capital. Valley International Journal Digital Library, 5365-5369.
  12. Eton, M., Mwosi, F., & Mpora, E. B. (2022). Financial Management Practices and Small-Scale Businesses' Profitability, from the Viewpoint of Kabale Municipality, Uganda. Annals of Management and Organization Research, 3(3), 165-178.
  13. Fransisca, C., Shalahuddin, A., Wendy, W., Giriati, G., & Hasanudin, H. (2023). The influence of cash conversion cycle, capital structure, and liquidity on profitability with firm size as moderation. International Journal of Applied Finance and Business Studies, 11(3), 528-534.
  14. Hayundaniswara, A., & Faisal, F. (2022). PENGARUH MANAJEMEN MODAL KERJA TERHADAP KINERJA PERUSAHAAN SEKTOR NON KEUANGAN. APSSAI ACCOUNTING REVIEW, 2(1), 1-12.
  15. Hutchison, P., Farris-II, M., & Anders, S. (2014). Cash-to-cash analysis and management: Useful performance measures for improving profitability. The CPA Journal, 77, 1-5.
  16. Jordan, B., Jaffe, J., Westerfield, R., & Ross, S. (2022). Corporate Finance (13th ed.): McGraw Hill.
  17. Kaddumi, T. A., & Ramadan, I. Z. (2012). Profitability and working capital management: The Jordanian case. International Journal of economics and Finance, 4(4), 217-226.
  18. Knauer, T., & Wöhrmann, A. (2013). Working capital management and firm profitability. Journal of Management Control, 24(1), 77-87.
  19. Komunikasi, D. (2023). Ekonomi Indonesia Tumbuh Tinggi pada Triwulan II 2023. Retrieved from https://www.bi.go.id/id/publikasi/ruang-media/news-release/Pages/sp_2521523.aspx
  20. Le, H.-L., Vu, K.-T., Du, N.-K., & Tran, M. D. (2018). Impact of working capital management on financial performance: The case of Vietnam. International Journal of Applied Economics, Finance and Accounting, 3(1), 15-20.
  21. Liadi, C. C., & Suryanawa, I. K. (2018). Pengaruh Ukuran Perusahaan, Net Working Capital, Cash Flow, dan Cash Conversion Cycle pada Cash Holding. E-Jurnal Akuntansi, 24(2), 1474-1502.
  22. Mandalaputri, R., Fettry, S., & Felisia, F. (2021). The effect of cash conversion cycle on the profitability of the retail trade sector companies. Riset: Jurnal Aplikasi Ekonomi Akuntansi dan Bisnis, 3(2), 501-520.
  23. Mandasari, R. (2023). The Impact of Capital Structure, Investment Growth, and Liquidity on Financial Performance of Automotive Companies and Its Components on The Indonesia Stock Exchange (2018-2022). Journal of Multidisciplinary Academic Business Studies, 1(1), 115-128.
  24. Mappadang, A., Wijaya, A. M., & Mappadang, L. J. (2021). Financial performance, company size on the timeliness of financial reporting. Annals of Management and Organization Research, 2(4), 225-235.
  25. Melani, A. (2023). Kaleidoskop 2023: Mengendus Dugaan Manipulasi Laporan Keuangan 2 Emiten BUMN Karya. Retrieved from https://www.liputan6.com/saham/read/5489984/kaleidoskop-2023-mengendus-dugaan-manipulasi-laporan-keuangan-2-emiten-bumn-karya
  26. Munawir, S. (2004). Analisa laporan keuangan: Liberty Yogyakarta.
  27. Oranefo, P. C., & Egbunike, C. F. (2023). Accounts Payable Turnover and Firm Performance of Quoted Manufacturing Firms in Nigeria. International Journal of Accounting and Management Information Systems, 1(1), 45-65.
  28. Owolabi, S. A., & Alu, C. N. (2012). Effective working capital management and profitability: A study of selected quoted manufacturing companies in Nigeria. Economics and Finance Review, 2(6), 55-67.
  29. Paskalis, Y. (2023). Terimpit Tenggat Tunggakan BUMN Karya. Retrieved from https://koran.tempo.co/read/berita-utama/482206/bumn-karya-terdesak-utang-jangka-pendek
  30. Raza, H., Riaz, N., Riaz, A., & Salman, A. (2023). Untangling the Puzzle of Cash Holding Net Working Capital & Financial Performance: A Case of Pakistan Stock Market. Journal of Accounting and Finance in Emerging Economies, 9(3), 453-468.
  31. Richards, V. D., & Laughlin, E. J. (1980). A cash conversion cycle approach to liquidity analysis. Financial Management, 32-38.
  32. Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2017). Essentials of corporate finance: McGraw-Hill.
  33. Saunders, M., Lewis, P., & Thornhill, A. (2023). Research Methods for Business Students: Pearson.
  34. Schindler, P. (2022). Business Research Methods (14th ed.): McGraw Hill.
  35. Sini, A. R., & Nainggolan, Y. A. (2023). Do Firms Change the Working Capital Management Policy During The Covid-19 Pandemic? Case of Transportation & Logistics and Healthcare Industries in Indonesia. International Journal of Current Science Research and Review, 6(7).
  36. Siregar, I. G., Pambudi, J. E., & Septiana, H. V. (2022). Pengaruh Net Working Capital, Cash conversion cycle, Leverage dan Cash Flow Terhadap Cash Holding (Pada Perusahaan Industri Dasar dan Kimia Yang Terdaftar Di Bursa Efek Indonesia Periode 2016-2020). ASSET: Jurnal Manajemen dan Bisnis, 5(1).
  37. Subramanyam, K. (2014). Financial statement analysis: McGraw-Hill.
  38. Sugiyono, S. (2020). Metodologi Penelitian Kualitatif. Bandung: Alfabeta.
  39. Sukmawati, S. (2019). Analisis Laporan Keuangan Sebagai Dasar Pengambilan Keputusan Investasi. Business and Economics.
  40. Titman, S., Keown, A. J., & Martin, J. D. (2021). Financial Management Principle and Applications Fourteenth Global Edition: Pearson.
  41. Van Horne, J. C., & Wachowicz, J. M. (2005). Fundamentals of financial management: Pearson education.
  42. Wasiuzzaman, S. (2015). Working capital and firm value in an emerging market. International Journal of Managerial Finance, 11(1), 60-79.
  43. Yilmaz, I., & Acar, G. (2019). The effect of cash conversion cycle on profitability in Omani companies. International Journal of Economics, Management and Accounting, 27(2), 269-290.
  44. Zeidan, R., & Shapir, O. M. (2017). Cash conversion cycle and value-enhancing operations: Theory and evidence for a free lunch. Journal of Corporate Finance, 45, 203-219.
  45. Zutter, C., & Smart, S. (2021). Principles of Managerial Finance [Global Edition] 16th Edition: Pearson.