Riset : Jurnal Aplikasi Ekonomi, Akuntansi dan Bisnis Vol. 3 No.

2, September 2021, Hal 502 - 520

THE EFFECT OF CASH CONVERSION CYCLE ON THE

PROFITABILITY OF THE RETAIL TRADE SECTOR
COMPANIES

Renata Mandalaputri 1), Sylvia Fettry 2), Felisia 3)

1,2) Program Sarjana Akuntansi, Fakultas Ekonomi, Universitas Katolik Parahyangan Bandung

INFO ARTIKEL ABSTRACT

The Effect Of Cash One of the company's goals is to increase company value. To achieve
Conversion Cycle On The
Profitability Of The retail
these goals, the company must increase its profitability. To increase
Trade Sector Companies profitability, companies have to manage working capital effectively
and efficiently. The effectiveness of working capital management can
Submitted: be measured using the Cash Conversion Cycle (CCC). CCC consists
15 – Februari - 2021
Revised: of Days Sales Outstanding (DSO), Days Sales Inventory (DSI), and
24 – Agustus - 2021 Days Payable Outstanding (DPO). This study aims to determine the
Accepted: effect of the CCC and its components on company profitability. The
27 – September - 2021
type of data used in this study is secondary data collected from
corporate financial reports. The population in this study are retail
trading companies listed on the Indonesia Stock Exchange during the
2015-2019 period. The data analysis method used in this study is the
multiple linear regression method for panel data and simple linear
regression for panel data. The results showed that partially, DSO, DSI,
and CCC harmed company profitability.
Meanwhile, the DPO has a positive effect on company profitability.
Simultaneously, DSO, DSI, and DPO affect profitability. Therefore,
companies need to pay attention to the CCC and its components
(DSO, DSI, and DPO) and manage it properly.

Keywords: Cash Conversion Cycle (CCC), Days Payable

Outstanding (DPO), Days Sales Inventory (DSI), Days Sales
Outstanding (DSO), Profitability, Return on Asset (ROA)
1) 2) 3)
E-mail : renata.mdl27@gmail.com , sylvia.fettry@unpar.ac.id , felisia.liu@unpar.id

INTRODUCTION

Faster economic development causes increasingly strict competition. Companies

must have advantages over competitors and have an effective and efficient performance
to achieve their goals and continue to compete in the business world. Each company
must have a purpose: to maximize profit, increase enterprise value, and provide added
value to shareholders through dividends. One of the things that companies can do to
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improve the company's value is to increase the company's profitability. To increase the
company's profitability, the company can manage working capital effectively and
efficiently.
According to Olfimarta & Wibowo (2019), working capital management is an
activity that includes all management functions regarding current assets and short-term
liabilities of a company. Working capital management aims to oversee the company's
running in fulfilling its short-term obligations and the extent to which its operations can
be financed with existing funding sources so that its paying power can be greater than
its financial obligations. According to Raheman & Nasr (2007), working capital
management is essential to company finances, directly affecting its liquidity and
profitability. Working capital management every company needs to pay attention
because it must adequately manage its current assets and current liabilities. However,
because it is short-term, working capital management is often not
considered. Poor working capital management will result in the company not meeting
its short-term obligations, which will impact financial distress. Financial distress is a
phenomenon where the company can no longer pay its debts, which causes bankruptcy.
In carrying out its operational activities, the company must manage working
capital efficiently and effectively so that no shortage or excess will harm the
company. Suppose the company experiences a lack of money. In that case, the company
will experience liquidity problems where it cannot pay its short-term obligations on
time, decreasing debtors' confidence in providing loans. In addition, one component of
working capital is inventory. Too little stock can result in an opportunity loss, in which
the company suffers a loss that comes from the loss of opportunity to earn profits due to
the company running out of inventory.
Meanwhile, excessive working capital indicates unproductive funds, which
means the company does not optimally use its funds to gain more profit. Excess
working capital can be overcome by depositing working capital owned by the company
or by making other investments so that the company can earn more profits. Based on the
previous literature, the effectiveness of working capital management can be measured
using the Cash Conversion Cycle (CCC). CCC consists of Days Sales Outstanding
(DSO), Days Sales Inventory (DSI), and Days Payable Outstanding (DPO) (Lazaridiz
and Tryfonidis, 2006).
According to the Central Statistics Agency (2019), in 2018, the industrial sector
had the most significant contribution to the Indonesian economy. The Gross Domestic
Product (GDP) of the industrial sector in 2018 reached Rp. 2,947.3 trillion or 19.82% of
the national GDP of Rp. 14,837 trillion. The second-largest contribution was the trade
sector, with a value of IDR 1,932 trillion or 13% of GDP. In 2018 retail trading
companies in Indonesia had a Gross Domestic Product (GDP) growth rate of around 5%
per year. Retail trading companies are a bridge that connects producers to customers,
and retail trading companies are companies that pay more attention to working capital
than other companies (Olfimarta & Wibowo, 2019).
The retail trade sector in Indonesia is currently showing the ability to progress
with the increasing number of retail shops in various places. The retail trade sector is a
trendy industrial sector and has dominated the lives of Indonesian people for
generations. It is indicated by the spread of stalls and grocery stores in almost every
area, from remote villages to big cities.
This study conducted a study on companies in the retail trade sector because
retail businesses rarely immediately sell their inventory. They must maintain a higher
level of working capital to ensure that they can meet short-term costs without relying on
revenue from sales (Pernamasari & Purwaningsih, 2019). The companies studied are

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included in the retail trading companies listed on the Indonesia Stock Exchange (ISE) in
2015-2019.
The research period is 2015-2019 because, since 2015, the retail trade sector has
experienced a slowdown in sales growth and began to improve in 2018. It is due to
changes in shopping behavior and technological advances that make online transactions
easier. This research is expected to reflect retail trading companies' current state and
financial development from year to year.
Research related to the effect of the cash conversion cycle on profitability has
been done quite often in various countries. However, the results of these studies are also
quite varied. Based on the results of previous studies, it was found that there was
a research gap. This research gap is in the form of differences from the effects of
previous studies, in which there are studies (Pais & Gama, 2015; Raheman & Nasr,
2007; Teruel & Solano, 2007). It states that CCC and its components affect profitability,
but there are also studies (Ermawati, 2011; Quang, 2017; Setiyanto & Aji, 2018) that
state that CCC does not affect profitability, but some of its components affect
profitability. Therefore, this study was conducted to examine whether CCC and its
components (DSO, DSI, DPO) affect the profitability of retail trading companies listed
on the Indonesia Stock Exchange (ISE) in 2015-2019.

LITERATURE REVIEW

Working Capital Management

According to Olfimarta & Wibowo (2019), working capital management is an
activity that includes all management functions regarding current assets and short-term
liabilities of a company. Working capital management aims to oversee the company's
running in fulfilling its short-term obligations and the extent to which its operations can
be financed with existing funding sources. The power to pay is greater than the financial
obligations that other parties must fulfill.
According to Gitman & Zutter (2015), the measurements of working capital
management are the Current Ratio, Quick Ratio, and Cash Conversion
Cycle. According to Adiguzel (2017), the concept of the cash conversion cycle was
introduced by Gitman in 1974 as an answer to the lack of use of liquidity ratios (current
ratio and quick ratio) in measuring and analyzing working capital management. The
function of the liquidity ratio is to measure the extent to which the company's current
assets cover its current liabilities. In a liquidation scenario, the company's existing
assets are expected to cover its current liabilities. However, the company is expected to
be a going concern and is not likely to conduct liquidation. The cash conversion cycle
becomes an alternative to static financial ratios and an essential element in working
capital management, which is considered part of the company's overall strategy.

Cash Conversion Cycle (CCC)

According to Hanafi (2004), the cash conversion cycle is a cash journey, from
cash issued (to buy merchandise) to cashback again (receivables paid). The Cash
Conversion Cycle is a comprehensive measure of working capital. It shows the time lag
between spending on merchandise purchases and receipts on merchandise sales
(Padachi, 2006). The cash conversion cycle measures the average time a company takes
to acquire and sell its inventories, collect and collect receivables, and pay its debts. So
the formula for the Cash Conversion Cycle (Keown, Martin, Petty, & Scott, 2010) is:
CCC=DSO + DSI−DPO

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Information:
CCC = Cash Conversion Cycle
DSO = Days Sales Outstanding
DSI = Days Sales Inventory
DPO = Days Payable Outstanding

The cash conversion cycle can be either a negative or a positive number. A

positive result indicates the number of days the company must borrow or commit capital
while waiting for payment from customers. A negative impact shows the number of
days the company has received cash from sales before paying its suppliers (Hutchison,
Farris-II, & Anders, 2014). Suppose the company has a negative cash conversion cycle.
In that case, it takes the company less time to sell its inventory and receive cash from its
customers than pay for the stock to its suppliers. Ideally, companies would like to have
a low and, if possible negative CCC. Because the shorter the CCC, the more efficient
the company manages its cash flow and the more cash available, and the easier it is to
pay the company's bills. According to Gitman (as cited by Moss & Stine, 1993),
although it is rare, non - manufacturing firms are more likely to have a negative CCC
than manufacturing firms. Non - manufacturing companies generally have smaller,
faster-selling inventories and often sell their products for cash. Thus,
non - manufacturing firms will have a shorter CCC.
On the other hand, shortening the cash conversion cycle can harm the company's
profitability. If the inventory conversion period is too short, the company risks losing
sales due to running out of stock and increasing shortage costs. Suppose the accounts
receivable conversion period is too short. In that case, the company may lose sales from
customers who require a more extended payment period than the company allows, and
the company will lose good credit customers. Suppose the company increases the debt
conversion period too much. In that case, the discount for early payments is forfeited,
and the supplier may face financial problems, damaging the company's credit
reputation. Having a low CCC is a good thing, but companies still have to pay attention
to whether, with a low CCC, the company will be at a loss because of the loss of
profitable customers and suppliers.

Days Sales Outstanding (DSO)

Days Sales Outstanding or receivable conversion period is the average time
required by the company to collect its receivables (Gitman & Zutter, 2015). The
formula for Days Sales Outstanding (Keown et al., 2010) is:
Accounts Receivable
DSO= ×365 days
Sales
According to Setiyanto & Aji (2018), the faster the period of cash receipts shows
that the working capital invested in receivables is lower, which is a good condition for
the company. The faster the receivables turnover indicates the success of receivables
collection, which also means the success of receivables management (Hanafi,
2004). Thus, the smaller the DSO, the higher the profitability of the company. The
smaller the DSO means that the time it takes to convert receivables into cash is
faster. That way, the company can use the cash to make other investments to increase its
profitability.

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Days Sales Inventory (DSI)

Days Sales Inventory or inventory conversion period is the average period it
takes a company to sell its inventory to customers (Gitman & Zutter, 2015). The
formula for Days Sales Inventory (Keown et al., 2010) is:
Inventory
DSI = ×365 days
Cost of Sales

According to Setiyanto & Aji (2018), the longer the inventory turnover period,
the more costs must be incurred. Thus, the smaller the DSI, the higher the profitability
of the company. The smaller the DSI means the time it takes for the company to convert
inventory into sales is getting faster, so its carrying costs will be smaller, and its
profitability can increase.

Days Payable Outstanding (DPO)

Days Payable Outstanding or debt conversion period is the average period
required by the company to pay its obligations (Gitman & Zutter, 2015). The formula
for Days Payable Outstanding (Keown et al., 2010) is:
Accounts Payable
DPO= ×365 days
Cost of Sales

According to Setiyanto & Aji (2018), the more extended the debt turnover
period, the better because allocating funds for debt repayment can make
investments. With the acquisition, the company can carry out production activities to
increase the company's ability to generate profits. Thus, the greater the DPO, the higher
the profitability of the company.

Profitability
Kasmir (2012) states that profitability is a ratio used to measure the efficiency of
the use of company assets or the company's ability to generate profits during a specific
period to see the company's ability to operate efficiently. The company's profitability
shows the stakeholders (creditors, suppliers, and investors) about the extent to which
the company can generate profits from the company's sales and investments. According
to Subramanyam & Wild (2014), profitability measures its success in using its resources
to generate profits. Profitability can be measured using various financial ratios. There
are several types of profitability ratios that can be used to assess and measure company
performance. According to Subramanyam & Wild (2014), the profitability ratios consist
of Gross Profit Margin, Operating Profit Margin (pretax), Net Profit Margin, Return
on Assets (ROA), and Return on Equity (ROE). The consideration for using ROA as a
measure of profitability is because ROA is a ratio used to measure how effective and
efficient a company is in managing its assets to generate profits. ROA measures the
company's overall ability to generate profits with the total amount of investments
available to compare ROA between companies. With ROA, companies can assess the
efficiency of the use of capital as a whole.

Return on Assets (ROA)

Return on Assets (ROA) is a profitability ratio that compares income with total
assets (equivalent, total liabilities, and equity capital). ROA can be interpreted in two
ways. It first measures the ability and efficiency of management in using company
assets to generate an operating profit. Second, it reports the total return earned by capital
providers (debt and equity), regardless of the source of capital (Nimer, Warrad, &

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Omari, 2015). Return on Assets shows the company's ability to generate profits from the
assets or assets it uses. This ratio shows how efficient the company is in utilizing its
investments in its operational activities. The formula for ROA (Brigham & Houston,
2010):
Net Income
ROA=
Total Asset
The greater the ROA value means that its performance in using its assets to generate
profits is more effective and efficient.

Retail Trade Sector

According to Olfimarta & Wibowo (2019), retail trading companies are a bridge
that connects producers to customers. This company buys various types of goods in
specific quantities and sells these goods directly to consumers. Retailers usually carry
out their activities by displaying their interests in the stores they own or rent. In this
way, the buyer can see for themselves the various types of goods that will be purchased.
Based on the studies that have been conducted, this study partially confirms the
effect of Days Sales Outstanding on profitability, the impact of Days Sales
Inventory on profitability partly, and the impact of Days Payable Outstanding on
profitability partially. In addition, this study also examines the simultaneous effect
of Days Sales Outstanding, Days Sales Inventory, and Days Payable Outstanding on
profitability. It ends with testing the impact of the Cash Conversion Cycle on
profitability.

The research models tested are as follows:

Figure 1. Research Model

RESEARCH METHODS
According to Sekaran & Bougie (2016), research is a process to find a problem
after conducting an in-depth study and analyzing the situational factors that influence
it.

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Types of research
This research is basic research that aims to contribute to existing knowledge
(Sekaran & Bougie, 2016), and this research is causal. This study is categorized into
causal analysis because it examines and analyzes whether changes in the independent
variables (DSO, DSI, DPO, and CCC) cause the dependent variable
(profitability). Causal research aims to determine whether the independent variable
affects the dependent variable.

Sampling Technique
The population of this study is companies engaged in the retail trade industry
sub-sector listed on the ISE in 2015-2019. The total population of this study is 27
companies. The sampling technique used in this research is the purposive sampling
technique. The criteria for sampling are as follows:
1. Companies that carry out Initial Public Offering (IPO) before 2015.
2. Companies that publish complete financial statements for the 2015-2019 period
3. The company has a positive profit during the 2015-2019 period

Table 1.
Sample Criteria Table
Number of
No Criteria
Companies
1 Total Retail Trading Company 27
2 Conducting IPO before 2015 20
3 Issuing financial statements for the period 2015-2019 18
4 Have a positive profit during the 2015-2019 period 8
Source: Processed Products
Companies that meet the predetermined sample criteria are:

Table 2.
List of Companies Used as Sample
No Code Company name
1 ACES Ace Hardware Indonesia Tbk.
2 AMRT Sumber Alfaria Trijaya Tbk.
3 CSAP Catur Sentosa Adiprana Tbk.
4 ERAA Erajaya Swasembada Tbk.
5 LPPF Matahari Department Store Tbk.
6 MAPI Mitra Adiperkasa Tbk.
7 MIDI Midi Utama Indonesia Tbk.
8 RALS Ramayana Lestari Sentosa Tbk.
Source: Processed Products
Data collection technique
Data collection is done to obtain the information needed in the research. The following
is a data collection technique used in this study.
1. Literature review
This study was conducted by reading theories and previous research found in
books and scientific journals.
2. Secondary data collection
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In this study, the data used is secondary data obtained from the site
www.idx.co.id. The data obtained is in the form of annual financial reports of
retail trading sector companies listed on the official website of the Indonesia
Stock Exchange (ISE) in the 2015-2019 period.

Data analysis method

1. Descriptive statistics
Descriptive statistics is a description to describe the research variables
statistically. Descriptive statistics is a method that deals with collecting or
presenting data to provide helpful information. The data study report consists of
the minimum, maximum, amount of data, average weight, and standard deviation.
2. Panel Data Regression Model Selection
According to Ghozali & Ratmono (2018), panel data can be defined as a data set
(database) in which the behavior of cross-sectional units (e.g., individuals, units,
countries) is observed over time. In this study, the data used is time-series because
it uses data from 2015–2019 and is cross-sectional because the data observed is
more than one company, so the panel data analysis method is used. According to
Widarjono (as quoted by Iqbal, 2015), to estimate model parameters with panel
data, there are three commonly used techniques (models), namely:
a. Common Effect Models
b. Fixed Effect Model
c. Random Effect Model
To determine the most appropriate model among the three approaches, it is
necessary to do two of the three model estimation techniques to test, namely
(Iqbal, 2015):
a. Chow test
The Chow test is used to determine whether the panel data regression
technique with the fixed effect method is better than the standard effect
method. The hypotheses formed in the Chow Test are:
H0 = common effect model H1 = fixed effect model
If the value of Prob. cross-section F 0.05 then reject H0 .
If the value of Prob. cross-section F > 0.05 then H0 is accepted .
b. Hausman Test
Hausman test is used to determine which one is better between the fixed
effect model and the random effect model. The hypotheses formed in the
Hausman test are:
H0 = random effect model H1 = fixed effect model
If the value of Prob. Random cross-section 0.05 then H0 is rejected.
If the value of Prob. Random cross-section > 0.05, then H0 is accepted.
c. Lagrange Multiplier Test
The Lagrange Multiplier test was conducted to determine which model is
better between the common and random effects. The hypotheses formed in
the Lagrange Multiplier Test are:
H0 = common effect model H1 = random effect model
If the value of Prob. 0.05, then H0 is rejected.
If the value of Prob. > 0.05, then H0 is accepted.

3. Classic assumption test

The classical assumption test on the multiple linear regression model based
on Ordinary Least Square (OLS) aims to test the feasibility of the regression

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model used in this study (Ghozali, 2018). In panel data regression, only
multicollinearity and heteroscedasticity tests should be performed (Iqbal, 2015).
a. Multicollinearity Test
The multicollinearity test tests whether the regression model found a
correlation between independent variables (independent). A good regression
model should not correlate with the independent variables. To determine
whether there is multicollinearity in the regression model, it can be done by
analyzing the correlation matrix of the independent variables. If the
correlation value is 0.90, there is multicollinearity in the regression model
(Ghozali, 2018).
b. Heteroscedasticity Test
Heteroscedasticity is a condition where there is an inequality of variance and
residual from one observation to another observation in the regression
model. A good regression model is one with homoscedasticity or no
heteroscedasticity. The method used to test heteroscedasticity is using the
White test (Ghozali, 2018). This test is performed by regressing the squared
residual with the independent variable, the squared independent variable, and
the multiplication (interaction) between the independent variables. If the
value of Prob. > 0.05, it can be concluded that the regression model does not
contain heteroscedasticity (Ghozali & Ratmono, 2018).
4. Panel Data Regression Analysis
To know the relationship between the variables, the data obtained must be
processed and analyzed. The data analysis method used in this research is multiple
linear regression analysis of panel data and simple linear regression analysis of
panel data. Panel data regression analysis is a method used to model the effect of
predictor variables on response variables in several sectors observed from an
object of research over a certain period (Srihardianti, Mustafid, & Prahutama,
2016). Multiple linear regression analysis of panel data was used to model the
effect of DSO, DSI, and DPO on company profitability. The following is a
multiple linear regression equation for panel data used in this study:
Y =α + β 1 X 1it + β 2 X 2it + β 3 X 3it + μ

Information:
Y = Profitability
α = Constant
1 = DSO Independent Variable Regression Coefficient
2 = DSI Independent Variable Regression Coefficient
3 = Regression Coefficient of Independent Variable DPO
X1 = Days Sales Outstanding (DSO)
X2 = Days Sales Inventory (DSI)
X3 = Days Payable Outstanding (DPO)
μ = Disturbance Error
i = Entity i
t = Period t

Simple linear regression analysis of panel data was used to model the effect of
CCC on company profitability. The following is a simple linear regression
equation for panel data used in this study:
Y =α + β 4 X 4it + μ

Information:
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Y = Profitability
α = Constant
4 = CCC Independent Variable Regression Coefficient
X4 = Cash Conversion Cycle (CCC)
μ = Disturbance Error
i = Entity i
t = Period t
The significance level in this study is 5%. This study determines the risk of error
in rejecting or accepting the correct hypothesis as much as 5% and the
confidence level to make decisions at least 95%.
5. Hypothesis testing
The following hypotheses were tested in this study:
First hypothesis
H 0 1 = Days Sales Outstanding does not affect profitability.
H A 1 = Days Sales Outstanding impact on profitability.

Second hypothesis
H 0 2 = Days Sales Inventory does not affect profitability.
H a 2 = Days Sales of Inventory effect on profitability.
Third hypothesis
H 0 3 = Days Payable Outstanding does not affect profitability.
H a 3 = Days Payable Outstanding impact on profitability.
Fourth hypothesis
H 0 4 = Days Sales Outstanding, Days Sales Inventory, and Days Payable
Outstanding simultaneously do not affect profitability.
H a 4 = Days Sales Outstanding, Days Sales of Inventory, and Days Payable
Outstanding simultaneous effect on profitability.
Fifth hypothesis
H 0 5 = Cash Conversion Cycle does not affect profitability.
H a 5 = Cash Conversion Cycle effect on profitability.
The hypothesis test that will be carried out in this study is the coefficient of
determination test, individual parameter test (t-test), and simultaneous test (F test).
a. Coefficient of Determination Test
The coefficient of determination (R2) essentially measures how far the model
can explain variations in the independent variable. The value of R2 small
means independent variables' ability to explain the variation is minimal
dependent variables. A value close to one means that the independent
variables provide almost all the information needed to predict the
interpretation of the dependent variable (Ghozali, 2018).
b. Individual Parameter Test (t-Test)
The t-statistical test shows how far the influence of one independent variable
on the dependent variable is by assuming the other independent variables are
constant (Ghozali & Ratmono, 2018). The basis for decision-making for this
test is to compare the p-value with α, which is 0.05. If the p-
value < alpha 0.05, then H0 is rejected; if the p-value ≥ alpha of 0.05, H0 is
accepted.
c. Simultaneous Test (F Test)
The F statistical test shows whether all the independent variables included in
the model have a joint or simultaneous effect on the dependent variable
(Ghozali & Ratmono, 2018). The basis for decision-making for this test is to

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compare the p-value with, which is 0.05. If the p-value < alpha 0.05, then H0 is
rejected; if the p-value ≥ alpha of 0.05, H0 is accepted.

RESULTS AND DISCUSSION

Descriptive statistics
Descriptive statistical analysis was used to describe the research variables
statistically. The following are descriptive statistics of each variable used in this study:
Table 3.
Descriptive Statistical Analysis Results

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
DSO 40 0.24 53.91 13.6081 15,35049
DSI 40 42.48 242.26 100.4386 58,15897
DPO 40 15,19 170.19 69.6668 42.25753
CCC 40 -63.88 238.67 44.9396 78,21615
ROA 40 0.0032 0.4579 0.097830 0.1126518
Source: SPSS 25. Output Results
Panel Data Regression Model Selection Results
Before performing a regression, you must first determine which panel data
regression model is the most appropriate. Three tests can be done to determine the most
appropriate panel data regression model in this study. The tests that can be performed
are the Chow test, Hausman test, and the Lagrange Multiplier test. In this study, the
Chow test and Hausman test will be carried out first. If the two tests have the same
result, there is no need to do the Lagrange Multiplier test.
a. Chow test
The following are the results of the Chow test that has been carried out:

Table 4.
Chow Test Results

Effect Test Statistics df Prob.

Cross-section F 17.90291 (7.28) 0.0000
Cross-section Chi-square 68.01301 7 0.0000
Information:
Redundant Fixed Effect Test
Equation: Untitled
Test cross-section fixed effects
Source: EViews 10 Output Results

From Table 4, it is known that the value of Prob . of the Chi-square cross-
section of 0.0000. This value is smaller than the significance level in this study
which is 0.05. So H0 is rejected, which means that the correct model for panel
data regression is the fixed effect model.
b. Hausman test
After it is known that the fixed effect model is better than the common
effect model, the Hausman test will be conducted to determine whether the fixed
effect model is better than the random effect model. The following are the results
of the Hausman test that has been carried out:

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Table 5.
Hausman Test Results

Test Summary Chi-Sq. Statistics Chi-Sq. df Prob.

Cross-section random 14.917987 4 0.0049
Information:
Correlated Random Effects – Hausman Test
Equation: Untitled
Test cross-section random effects
Source: EViews 10 Output Results

From Table 5, it is known that the value of Prob from a random cross-section of
0.0049. This value is smaller than the significance level in this study which is
0.05. So H0 is rejected, which means that the correct model for panel data
regression is the fixed effect model.
The Chow test and Hausman test that have been carried out show the same
results, namely the panel data that is better used is the fixed effect model. So the
Lagrange Multiplier test does not need to be carried out.

Classic assumption test

A good regression model must meet the classical assumption test. A classical
assumption test was conducted to assess whether the regression model in the study
was feasible to use.
a. Multicollinearity Test
The analysis of the multicollinearity test is as follows:

Table 6.
Multicollinearity Test Results

DSO DSI DPO

DSO 1.0000000 -0.319681 -0.051491
DSI -0.319681 1.0000000 -0.205092
DPO -0.051491 -0.205092 1.0000000
Source: EViews 10 Output Results
The basis for decision making in the multicollinearity test are:
a) if the correlation value is 0.90, then multicollinearity occurs in the regression
model.
b) if the correlation value is < 0.90, there is no multicollinearity in the regression
model.
From Table 6, it can be seen that there is no correlation value greater than or
equal to 0.90, so it can be concluded that in this study, there was no
multicollinearity between independent variables in the regression model.
b. Heteroscedasticity Test
The analysis of the heteroscedasticity test is as follows:

Table 7.
Heteroscedasticity Test Results with White Test
Variable Coefficient Std. Error t-Statistic Prob.
C -0.002725 0.001671 -1.631412 0.1136

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DSO^2 -4.39E-07 1.57E-06 -0.278922 0.7823

DSI^2 1.01E-07 9.11E-08 1.104645 0.2784
DPO^2 3.43E-07 1.81E-07 1.892342 0.0685
Information:
Dependent Variable: RESID^2
Method: Least Squares Panel
Date: 01/08/21 Time: 07:21
Sample: 2015 2019
Periods included: 5
Cross-sections included: 8
Total panel (balanced) observation: 40
Effect Specification
Cross-section fixed (dummy variables)
Source: EViews 10 Output Results

The basis for making decisions in the heteroscedasticity test using the White test
are:
a) if the value of Prob. > 0.05, then there is no heteroscedasticity in the
regression model.
b) if the value of Prob. 0.05, then there is heteroscedasticity in the regression
model.
From table 7, it is known that DSO (X1) has a significance value of 0.7823,
DSI (X2) has a significance value of 0.2784, and DPO (X3) has a significance
value of 0.0685. These three variables have a significance value greater than
0.05, meaning that the X1, X2, and X3 are free from heteroscedasticity.
Panel Data Multiple Linear Regression
Based on the previous explanation, this regression model has passed the classical
assumption test, and the panel data model used in this study is the fixed
effect model. The following are the results of panel data multiple linear regression:

Table 8.
Panel Data Multiple Linear Regression Results
Variable Coefficient Std. Error t-Statistic Prob
C 0.098674 0.058620 1.683296 0.1031
DSO -0.005191 0.001679 -3.092463 0.0044
DSI -0.001218 0.000460 -2.650752 0.0129
DPO -0.002758 0.000756 3.649949 0.001

R-squared 0.943521 Mean dependent var 0.097830

Adjusted R-squared 0.924045 SD dependent var 0.112652
Sum squared resid 0.031047 Akaike info criterion -3.878232
Likelihood logs 88.56465 Schwarz criterion -3.413791
F-statistics 48.44638 Hannan Quinn Criter. -3.710305
Prob(F-statistic) 0.000000 Durbin-Watson stat 2.095480

Information:
Dependent Variable: ROA
Method: Least Squares Panel
Date: 01/08/21 Time 08:31

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Sample: 2015 2019

The period included: 5
Cross-sections included: 8
Total panel (balanced) observation: 40
Effect Specification
Cross-section fixed (dummy variables)
Source: EViews 10 Output Results

From table 8 the regression equation can be arranged as follows:

Profitability = 0.098674 – 0.005191DSO – 0.001218DSI + 0.002758DPO

From this equation, it is known that the regression coefficient value of DSO is -
0.005191 so that for one increase in DSO, the company's profitability will decrease by
0.005191. The regression coefficient value of DSI is -0.001218 so that with one
increase in DSI, the company's profitability will decrease by 0.001218. The regression
coefficient value of the DPO is 0.002758, so that for one increase in the DPO, the
company's profitability will increase by 0.002758. The constant value in this model
is 0.098674; this indicates that if the three independent variables (DSO, DSI, and DPO)
are constant or equal to zero, then the profitability (ROA) will be 0.098674.

Multiple Linear Regression Hypothesis Test Results Panel Data

Hypothesis testing in panel data multiple linear regression was carried out
through the coefficient of determination test, t statistical test, and F statistical test.
a. Coefficient of Determination Test Results
From table 8 . it can be seen the value of adjusted R2 of 0.924045 or by 92.40%,
which means the independent variable can explain the company's profitability in
this study (DSO, DSI, and DPO) of 92.40%. In contrast, the remaining 7.60% is
explained by other variables outside of this research model.
b. Individual Parameter Test Results (t-test)
T statistical test was conducted to determine the effect of the independent
variables partially on the dependent variable. Based on Table 8, it can be seen
that the independent variable X1 (DSO) has a significance value of 0.0044, the
independent variable X2 (DSI) has a significance value of 0.0129, and the
independent variable X3 (DPO) has a significance value of 0.0010. The
significance value of the three variables is smaller than the research error rate of
0.05. It indicates that Ha1, Ha2, and Ha3 are accepted, which means that the
variables X1 (DSO), X2 (DSI), and X3 (DPO) partially affect the Y variable
(profitability).
c. Simultaneous Test Results (F Test)
The F statistical test was used to simultaneously determine the independent
variables' effect on the dependent variable. From Table 8 . the known
significance level of 0.000000. The significance value is smaller than the level
of error in the research by 0.05, so it can be concluded that the variables X1
(DSO), X2 (DSI), and X3 (DPO) simultaneously or jointly affect the variable Y
(profitability). So H04 is rejected, and Ha4 is accepted.

Simple Linear Regression Panel Data

The following are the results of simple linear regression of panel data:

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Table 9.
Simple Linear Regression Results Panel Data

Variable Coefficient Std. Error t-Statistic Prob

C 0.158555 0.020651 7.677863 0.0000
CCC -0.001351 0.000444 -3.043757 0.0047

R-squared 0.928776 Mean dependent var 0.097830

Adjusted R-squared 0.910396 SD dependent var 0.112652
Sum squared resid 0.033721 Akaike info criterion -3.746279
Likelihood logs 83.92558 Schwarz criterion -3.366281
F-statistics 50.53107 Hannan Quinn Criter. -3.608884
Prob(F-statistic) 0.000000 Durbin-Watson stat 1.372814

Information:
Dependent Variable: ROA
Method: Least Squares Panel
Date: 01/08/21 Time 08:34
Sample: 2015 2019
The period included: 5
Cross-sections included: 8
Total panel (balanced) observation: 40
Effect Specification
Cross-section fixed (dummy variables)
Source: EViews 10 Output Results

From table 9 . the regression equation can be arranged as follows:

Company Profitability = 0.158555 – 0.001351CCC
From this equation, it is known that the regression coefficient value of CCC is -
0.001351 so that for one increase in DSO, the company's profitability will decrease by
0.001351. The constant value in this model is 0.158555; this indicates that if the three
independent variables (DSO, DSI, and DPO) are constant or equal to zero, then the
profitability (ROA) will be 0.158555.

Simple Linear Regression Hypothesis Test Results Panel Data

Hypothesis testing in simple linear regression of panel data is carried out
through the coefficient of determination and t statistic tests.
a. Coefficient of Determination Test Results
From Table 9. it can be seen the value of adjusted R2 of 0.910396 or by 91.04%,
which means the independent variable can explain the company's profitability in
this study (CCC) of 91.04%. At the same time, the remaining 8.96% is explained
by other variables outside of this research model.
b. Individual Parameter Test Results (t-test)
Based on Table 9, it can be seen that the independent variable X4 (CCC) has a
significance value of 0.0047. The significance value is smaller than the research
error rate of 0.05. It indicates that Ha5 is accepted, which means that the X4
variable (CCC) affects the Y variable (profitability).

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Discussion of Research Results

The following is a more in-depth discussion of the effect of the independent variables
(DSO, DSI, DPO, and CCC ) on the dependent variable ( profitability ).
1. Effect of Days Sales Outstanding on company profitability
The study results using statistical tests indicate that Days Sales
Outstanding partially affects company profitability and has a negative
relationship. The smaller the DSO means that the time it takes to convert
receivables into cash is faster. That way, the company can use the cash to make
other investments, such as depositing the cash to increase its
profitability. Conversely, if the company converts receivables into old cash, it
does not have more cash to invest. In this study, it is known that the company's
ability to increase profitability is influenced by how quickly it takes the company
from the time the credit sale occurs until the cash receipts for the sale. It shows
that retail trading companies have efficiently managed cash from their receivable
collection activities to increase profitability. It is following the results of previous
studies conducted by Teruel & Solano (2007), Fauzan & Laksito (2015), and Pais
& Gama (2015), which stated that Days Sales Outstanding harmed profitability.
2. Effect of Days Sales Inventory on company profitability
The study results using statistical tests indicate that Days Sales Inventory has a
partial effect on company profitability and has
a negative relationship. Theoretically, the faster it takes the company to change
the inventory to sales, the more likely it will earn higher profits. Different things
will happen if the opposite happens; if the company converts the list into sales, its
stock will accumulate in the warehouse. The company will be less likely to
increase profitability. A small DSI can minimize the risk of losses from changes
in market prices and consumer tastes and help companies save costs from storage
in company warehouses. In this study, it is known that the company's ability to
increase profitability is influenced by how quickly it takes the company from the
time the company buys merchandise until the company sells it. It shows that retail
trading companies have managed their inventory efficiently to increase the
company's profitability. It is following the results of previous research conducted
by Teruel & Solano (2007), Pais & Gama (2015), and Quang (2017), which stated
that Days Sales Inventory harmed profitability.
3. Effect of Days Payable Outstanding on company profitability
The study results using statistical tests showed that Days Payable
Outstanding had a partial effect on company profitability and had a positive
relationship. The bigger the DPO, the better the company because
allocating funds for debt repayment can make investments. With the investment,
the company can carry out its operational activities more smoothly to increase its
ability to generate profits. The company can also make other investments, such as
depositing cash to increase its profitability. Conversely, if the company's time
to pay off debt is small, then the company does not have extra cash to invest. In
this study, the company's ability to increase profitability is influenced by how
quickly it takes the company from purchasing merchandise to pay for the goods. It
shows that retail trading companies have managed their debt efficiently to
increase the company's profitability. Following the results of previous research
conducted by Ulum & Hartono (2017) and Setyadharma & Januarti (2019), it is
following that Days Payable Outstanding had a positive effect on profitability.

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4. Effect of DSO, DSI, DPO simultaneously on company profitability

The study results using statistical tests show that Days Sales Outstanding, Days
Sales Inventory, and Days Payable Outstanding have a simultaneous effect on
company profitability. In this study, it can be said that Days Sales
Outstanding, Days Sales Inventory, and Days Payable Outstanding owned by
retail trading companies can affect profitability. Companies need to properly
manage all components of the cash cover cycle (DSO, DSI, and DPO) to increase
the company's profitability. Things that can be done are with a company to
manage cash efficiently from collecting receivables and credit selling and making
payments to suppliers on time. Following the results of previous research
conducted by Setyadharma & Januarti, 2019), which states that Days Sales
Outstanding, Days Sales Inventory, and Days Payable
Outstanding simultaneously affect profitability.
5. Effect of Cash Conversion Cycle on company profitability
The study results using statistical tests show that the Cash Conversion Cycle
affects the company's profitability and has a negative relationship. In this study, it
can be said that the Cash Conversion Cycle owned by retail trading companies
can affect profitability. The smaller the cash conversion cycle, the better the
management's ability to manage the company's working capital. The smaller the
cash conversion cycle value means the smaller the value of the company's
investment in working capital. While a large cash conversion cycle shows the
company has a significant investment in its assets, this causes a decrease in the
availability of cash, resulting in the company's operational activities not running
smoothly, so that the company's profitability decreases. It is under the results of
previous studies conducted by Lazaridis & Tryfonidis (2006), Pais & Gama
(2015), and Herli & Hafidhah (2015), which stated that the Cash Conversion
Cycle harmed profitability.

CONCLUSION

Based on the results of the research that has been done, there are several essential
things obtained. Days Sales Outstanding affect the company's profitability. Days Sales
Outstanding is an indicator to measure the average period required by the company
since credit sales occur until cash receipts for these sales. Based on the regression
results, it can be concluded that DSO partially affects company profitability. The
smaller the DSO, the better the company's ability to manage its receivables. The
company has cash that can be used to invest in its operational activities, increasing its
profitability.
Days Sales Inventory affects the company's profitability. Days Sales of
Inventory is an indicator for measuring the average period the company needs to change
the inventory to sales. Based on the regression results, it can be concluded that DSI
partially affects its profitability. The smaller the DSI, the risk of loss from changes in
market prices and consumer tastes can decrease; besides, its storage costs will also be
smaller to increase its profitability.
Days Payable Outstanding affects the company's profitability. Days Payable
Outstanding is an indicator to measure the average period from the purchase of raw
materials to pay for the goods or the time it takes the company to pay its obligations or
debts. Based on the regression results, it can be concluded that DPO partially affects its
profitability. The greater the DPO, the better the company's ability to manage its debt.
The company has cash that can be used to invest in its operational activities, increasing
its profitability.

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Days Sales Outstanding, Days Sales Inventory, and Days Payable

Outstanding affect the company's profitability. Based on the result of simultaneous tests
that have been carried out, it can be concluded that days sales outstanding, days sales
inventory, and days payable outstanding simultaneously affect the company
profitability.
The Cash Conversion Cycle affects the company's profitability. The Cash
Conversion Cycle measures the average time a company takes to acquire and sell its
inventory, collect and collect receivables, and pay its debts. The Cash Conversion
Cycle has three components, namely Days Sales Outstanding (DSO), Days Sales
Inventory (DSI), and Days Payable Outstanding (DPO). Based on the regression results
that have been done, it can be concluded that CCC affects company profitability. The
smaller the value of the cash conversion cycle means the company has more cash
available that can be used to launch the company's operational activities to increase the
company's profitability.
Companies in the retail trade sector rarely managed to sell all the inventory
immediately, so the company must maintain higher working capital. It is necessary so
that the company can meet short-term costs without relying on revenue from sales. The
changes in shopping behavior and technological advances that make it easier to conduct
online transactions will increase its growth in the retail trade. The cash conversion cycle
needs to be managed and possible to improve the company's profitability. The short
cash conversion cycle reflects the efficiency of sales in retail companies. The quick cash
conversion cycle shows how quickly and efficiently a retail company buys, sells, and
collects its inventory. Good cash conversion cycle management will ultimately increase
the profitability of retail companies.

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