The Effect of Capital Structure and Working Capital Turnover on Profitability in Manufacturing Companies: An Empirical Study of the LQ45 Index
DOI:
https://doi.org/10.38035/dijefa.v7i3.7117Keywords:
Debt to Equity Ratio, Working Capital Turnover, Profitability, Trade-Off TheoryAbstract
This research aims to examine and analyze the effect of capital structure (Debt to Equity Ratio) and working capital efficiency (Working Capital Turnover) on profitability (Return on Assets). The population in this study is manufacturing companies consistently listed in the LQ45 index of the Indonesia Stock Exchange during the 2022-2025 period. Sampling was conducted using a purposive sampling technique, resulting in 48 observation units from 12 companies over four years. The data were analyzed using the Panel Data Regression method. Based on the Chow Test and Hausman Test results, the Fixed Effect Model (FEM) was selected as the most appropriate estimation model. The results show that the Debt to Equity Ratio (DER) has a significant positive effect on profitability, supporting the relevance of the Trade-Off Theory regarding the benefits of tax shields. Conversely, Working Capital Turnover (WCTO) has no significant effect on profitability. This indicates that overly rapid turnover of receivables and inventory potentially generates hidden costs that can reduce estimated operational profits.
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