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utilization of working capital available to improve the profitability of the company.
b. Receivable Turnover Ratio This ratio measures the efficiency management of
receivable in company. The higher ratio shows that working capital invested in receivables is low. Formulation of Receivable Turnover
is :
Sugiono, 2009;73
c. Inventory Turnover Ratio This ratio measures the efficiency management of inventory
in company, and shows how many times the inventory can be spin in a year. Formulation of Inventory Turnover is:
Sugiono, 2009;73
B. Liquidity
1. Understanding liquidity
Liquidity is one of the components to assess the financial of company. Liquidity is the ability of a company to meet its short term obligations as they
mature Sawir, 2001: 31. If the company is able to make payments on its
Receivable Turnover : Receivable Sales x 100
Inventory Turnover : COGS Inventory x 100
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maturing obligations, meaning the company in a liquid state, and vice versa if the company does not have the ability to make payments, meaning the
company in a state liquid that can inhibit the activity of the companys operations and reduce its effectiveness. Liquidity can also be shown by the
size of the current assets easily converted into cash such as accounts receivable, marketable securities and inventories.
Problem of liquidity is an important issue in a company that is relatively difficult to solve. In view of the creditors, the company which has
high liquidity is a good company, because the funds are borrowed short-term creditors can be guaranteed by the companys current assets. Otherwise from
the side of management, the company which has high liquidity is a bad company due to high liquidity indicates that idle cash balances, higher
inventory, or higher trade receivables.
2. Liquidity ratio
Liquidity Ratio Horne and Wachowicz; 2005: 205 is a ratio that measures a companys ability to meet its short-term. This ratio compares the
short-term liabilities with short-term current resource available to meet those obligations. Meanwhile, according to Munawir 2004 : 31 liquidity is to show
the ability of a company to meet its financial obligations to be met, or the companys ability to meet financial obligations when billed.
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Liquidity has always been associated with working capital that there are two basic principles of working capital finance Horne and Wachowicz,
2005: 313 : a. Profitability is inversely related to liquidity
b. Profitability is directly proportional to the risk. In achieving higher profitability should be aware that the risks faced is greater.
Horne and Wachowicz 2005: 313 declared an indication of the greater liquidity of the company, the stronger overall financial condition, and
the growth profit of the company means that the higher level of risk that funding is used, like as debt financing more attractive to an improvement in
liquidity. According to Horne and Wachowicz 2005 : 207-208, liquidity ratio is
divided by : a. Current Ratio is the total current assets divided by current liabilities
current assets current liabilities. Availability of cash to meet those obligations from cash or cash conversion of current assets.
b. Quick Ratio is the current assets minus inventories divided by current liabilities. A company that has a quick ratio of less than 1: 1 or 100 is
considered poor liquidity levels. This study uses the current ratio. The current ratio is a ratio to measure
a companys ability to meet short-term obligations or debt immediately due at
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the time billed as a whole. Precision current ratio according to Tunggal 2000: 155 depends on many factors, which are as follows:
a. Accepted credit terms from suppliers than with credit terms granted by the company to the buyer,
b. The time it takes to collect receivables, c. Inventory turnover,
d. Characteristics of the companys financial program, e. Season of the year in question,
f. Conjuncture situation, g. Working capital cycle length,
h. Whether the company was looking to generalize be reduced. The formula for the current ratio or current ratio can be used as follows:
C. Profitability
1. Understanding Profitability
Profit in operations is an important element to to ensure the survival in the future. The companys success can be seen from the ability of the company
makes a profit, the companys ability to compete in the market, and the ability of the company to be able to expand the business.
According to Gitman 2003: 599: profitability is the relationship between revenues and costs generated by using the firms assets - both current
Current Ratio = Current Assets Current Liabilities
