THE INFLUENCE OF RUPIAH, INCREASE OF WAGES AND ELECTRICITY ON WORKING CAPITAL AND PROFITABILITY

The purpose of the research was to find out the effects of rupiah exchange per US dollar, and increase of wages and electricity on the ratio of net working capital and profitability. Descriptive methodology using case-study approach was used in PT XYZ as a producer of sewing thread. Secondary data were collected from January 2009 to June 2014. Monthly data of financial ratios consisting of liquidity ratio, activity ratio, and profitability ratio was analyzed with multiple regressions using Minitab 16. The results showed that rupiah impairment per US dollar could lower the ratio of net working capital and profitability. The increase of wages and electricity would increase the ratio of net working capital, but fortunately it would also increase profitability due to the increase of employees’ productivity and efficient use of electricity. All the free variables insignificantly affect net working capital and profitability. The study also showed that the impairment of rupiah exchange and working capital variables that are measured by receivables age, inventory age, and loan age could influence return on asset. The impairment of rupiah exchange rate, receivables age, and inventory age had a negative impact on the return on asset, while loan age had a positive impact on the return on asset. The impairment of rupiah exchange rate, receivables age, and inventory age had a significant influence on the return on asset so that the company’s management must focus more on anticipating rupiah exchange fluctuation, and management of accounts receivables and inventory.


INTRODUCTION
Management of working capital is the most important activity in managing a company. A good working capital management can determine the sustainability of the company's operation (Raheman, 2012). A good working capital management can increase the company's profitability (Baveld, 2012).
A sufficient amount of working capital can ensure the company's ability to meet day-today expenses, starting with buying the raw materials until the realization of cash income. The time period needed to convert the raw materials into ready materials, and to sell them until cash is obtained is known as operational cycle or cash cycle. An excessive working capital is not good for the company because it shows that there are some unproductive funds embedded in the current assets. On the other hand, working capital deficit will show the company's liquidity problem. Whether the company's financial condition is healthy or not depends on the working capital effectiveness (Pham 2013;Rehn 2012).
The final objective of the company is to increase the shareholders' assets by increasing the company's profit. However, increase of profit without paying attention to the company's liquidity will endanger the company itself. Achievement of the highest sales, when it is not accompanied by a good receivable management, will make the company overtrading. The company will face conditions where in a certain period of time it cannot make billing because of a breakdown in the payments from the customers so that it cannot pay off their shortterm liabilities, and thus it will disrupt the company's activities. Therefore, it is important for the company to accelerate conversion cash cycle in order to improve cash holding (Zhang, 2011). The terms 'Cash is the king' is a central element in every company's operational cycle. (Finau, 2011). Miswanto (2012) states that in managing working capital there are two key elements in determining the optimal current asset level, namely liquidity matter and trade-off between profitability and risk. To determine the amount of optimal current assets is to look for the balance between the adequate liquidity the company wants and the profit the company expects.
In preparing the budget for working capital and the target for profit, the company's management also considers macro economic factors, such as inflation rate and rupiah exchange rate towards US dollar. The inflation rate is used to plan production cost, sales cost and administration fees. Rupiah exchange towards US dollar will be used to convert the revenue, the cost and the scale.
The increase of minimum wages and electricity rates carried out by the government is a factor that can contribute to inflation. Due to the increase of production cost, the company will adjust the prices by increasing the sales price. From demand point of view, the increase of sales price will lower demand, which later on will affect the company's production level.
Rupiah exchange fluctuation towards US dollar also affects business very much because the company makes a transaction using rupiah and dollar currencies, whereas the financial report uses US dollar currency. Fluctuation of rupiah exchange towards US dollar can hardly be avoided, and it can cause fluctuation of net working capital. However, by anticipation and a good financial management, the risk can be minimized. Mehtab (2013) says that the influence of exchange fluctuation very much affects the company's profitability level.
The objectives of the research are as follows: 1. To analyze the influence of rupiah exchange per US dollar, increase of wages and electricity on the company's net working capital and profitability. 2. To analyze the influence of rupiah exchange per US dollar and the working capital component such as receivables age, inventory age and loan age on the return on asset. 3. From the analyses of the factors, there comes an input about how to optimalize working capital so that the company's profitability can increase.
PT XYZ is a company that produces sewing thread as raw materials for garment and shoe companies. The scope of the research includes the influence of rupiah exchange, increase of wages and electricity on the ratio of net working capital and business profit margin. The influence of fluctuation of rupiah exchange and working capital components, namely receivables age, inventory age and loan age will be tested against the return on asset.

METHODS
The research was carried out using a descriptive method and a case-study approach. The analysis of financial ratios includes liquidity ratios, namely net working capital to sales, activity ratio and profitability ratio using secondary data from January 2009 to June 2014. Monthy data was analyzed with multiple regression equation using Minitab 16.
The research would give us a picture of how rupiah exchange per US dollar, increase of wages and electricity could influence cost, income and net working capital of the company, and could give input to the company in dealing with optimal working capital management so that it could improve profitability. Figure 1 is the frame of the research conceptual thought.

Regression Model
Multiple regression model was made with the assumption that the dependent variable (response) Y is a linear function of several independent variables X 1 , X 2 ,…,Xk, and the rest component ℮ (error) (Juanda, 2009). Model 1 and model 2 were used in this research to test the influence of the independent variables i.e. rupiah exchange fluctuation, electricity cost, raw materials cost, maklon service cost, local sales price, export sales price, local sales volume, export sales volume, previous net working capital and previous business profit margin on the net working capital and business profit margin. Model 3 was used in this research to test the influence of rupiah exchange fluctuation per US dollar, receivables age, inventory age and loan age, and the previous ROA on the current ROA.
Model 1 Y t = a + b 1 X 1 + b 2 X 2 + b 3 X 3 + b 4 X 4 + b 5 X 5 + b 6 X 6 + b 7 X 7 + b 8 X 8 + b 9 X 9 +b 10 Y t-1 + ℮ in which: Y = Ratio of net working capital to sales (%) a = Constanta X 1 = Rupiah exchange per US dollar (Rp) X 2 = Wage per capita per month (thousand Rp) X 3 = Electricity cost per Kwh (Rp) X 4 = Average of raw materials per Kg ($US) X 5 = Average of maklon service cost per Kg Y t = a + b 1 X 1 + b 2 X 2 + b 3 X 3 + b 4 X 4 + b 5 X 5 + b 6 X 6 + b 7 X 7 + b 8 X 8 + b 9 X 9 + b 10 X 10 + b 11 Y t-1 + ℮ in which: Y = Current business profit margin (%) a = Constanta X 1 = Rupiah exchange per US dollar (Rp) X 2 = Wage per capita per month (thousand Rp) X 3 = Electricity cost per Kwh (Rp) X 4 = Average of raw material price per Kg Model 3 Y t = a + b 1 X 1 + b 2 X 11 + b 3 X 12 + b 4 X 13 + b 5 Y t-1 + ℮ in which: Y = ROA is business profit ratio to total asset (%) a = Constanta X 1 = Fluctuation of rupiah exchange rate per $US (%) X 11 = Receivables age (day) X 12 = Inventory age (day) X 13 = Loan age (day) Y t-1 = Previous ROA period (%) The statistical analysis was used to analyze the influence of independent variables such as rupiah exchange rate, wage cost and electricity cost on the dependent variable i.e. net working capital ratio to sale. The statistical analyses was also used to analyze the influence of independent variables i.e. rupiah exchange, wage cost, and electricity cost on the business profit margin. Furthermore, the statistical analyses was used to analyze the influence of rupiah exchange fluctuation and working capital management variable such as receivables age, inventory age and loan age on the return on asset. The statistical hypothesis for testing is as follows: H 0 : b = 0 (no variable influence -variable tested on net working capital, business profit margin and return on asset).
wage cost, and electricity cost on net working capital ratio).
wage cost, electricity cost on business profit margin). H 1 : b ≠ 0 (influence of rupiah exchange per US dollar, receivables age, inventory age and loan age on the return on assets).

Multicolinerity Test
This test was used to see whether in the regression model there was a correlation among independent variables. A good regression model should have no correlation among independent variables (no multicolinerity). If VIF of classical assumption test results were between 1 and 10 there would be no multicolinerity (Sujarweni, 2014). If VIF was higher than 5 or 10, there would be multicolinerity in the model (Iriawan and Astuti, 2006).

Autocorrelation Test
To detect the existence of autocorrelation, graphical methods or Durbin-Watson test could be used (Juanda, 2009

RESULTS
From Figure 2 it can be seen that rupiah exchange per US dollar fluctuated from January 2009 and weakened until mid 2011. It then recovered until 2013. In January 2014 it weakened again until June 2014. The average wage cost kept improving due to the government policy on minimum wages. However, the average of electricity cost looked stable in spite of a policy on the increase of basic electricity cost.
The ratio of net working capital kept improving, but business profit margin and return on asset showed a stable trend. The increase of net working capital was due to the improvement of liquidity in the form of deposits in the main company. In line with the liquidity improvement, the cash conversion cycle also accelerated due to the improvement of business loan age compared to receivables age and inventory age.

The influence of Rupiah Exchange, Wage Cost and Electricity Cost on the Net Working Capital Ratio
The test to see the influence of rupiah exchange per US dolar, wage cost and electricity cost on net working capital ratio was carried out by analyzing the data for 66 months from January 2009 to June 2014. The statistical analyses with multiple linear regresions were used with statistic software of Minitab 16.
Based on the data processed for 66 months, a regression equation can be obtained as follows: Y t = 681 -0,0041 X 1 + 0,0053 X 2 + 0,068 X 3 + 47,2 X 4 + 61,7 X 5 -25,2 X 6 + 3,1 X 7 -3,25 X 8 -1,47 The regression equation showed that the weakening rupiah exchange per US dollar for 1 rupiah would lower the ratio of net working capital to sale as much as 0,0041%. The increase of wage cost per month for Rp. 1,000 would increase the ratio of net working capital as much as 0,0053%. The increase of electricity cost for 1 rupiah per Kwh would increase the ratio of net working capital as much as 0,068%.
The average increase of raw materials price for every 1 US dollar increase per Kg will influence the increase of the net working capital ratio to sales as much as 47,2%. The increase of maklon service cost for 1 US dollar per Kg would increase the ratio of net working capital to sales as much as 61,7%. All the increase of production cost would increase the basic price of production that would increase the supply value. From the viewpoint of sales, the regression equation showed an average increase of local sales price for 1 US dollar per Kg would reduce the ratio of net working capital to sales as much as 25,2%. However, every average increase of export sales price for 1 US dollar per Kg would increase the ratio of net working capital as much as 3,1%. The growth of local sales volume from the previous period for 1% would reduce the ratio of net working capital as much as 3,25%. The growth of export sales volume from the previous period for 1% would lower the ratio of net working capital as much as 1,47. The ratio of net working capital of the previous period would also influence the ratio of net working capital of the current period where every 1% increase of the previous net working capital would increase the ratio of the current net working capital as much as 0,775%. Regression analysis of net working capital show in Table 1.
From Table 1 shows that the regression results for the dependent variable of net working capital can be interpreted as follows: • 75,1% of the net working capital ratio variable can be explained by ten independent variables. • Durbin-Watson test value as much as 1,96334 and Durbin H test value as much as 0,310 is between -1,96 dan 1,96 can be concluded to have no autocorrelation.
• Table ANOVA identifies that the F test = 16,63 with P-value 0,000 is smaller than α=0,05, so that the independent variables simultaneously give a significant influence on the dependent variable, so it can be comcluded that the regression is feasible. • With the F test, hypothesis test H 0 : b 1 =b 2 =b 3 =b 4 =b 5 = b 6 =b 7 =b 8 =b 9 =b 10 =0 on H 1 : at least one of b≠0, shows that the regression coefficient is not the same as nil and the P-value = 0,0000 is smaller than α=0,05, which means that H 0 is resisted and H 1 is accepted. • The Variance Inflation Factor (VIF) value from the regression model for rupiah exchange variable, wage cost, electricity cost, raw material price, maklon service cost, local sales price, local sales volume growth, export sales volume growth, and previous net woking capital ratio is below 10 each so that it shows that there is no multicolinerity among the independent variables. However, the export sales price shows there is a multicolienrity with the VIF value as much as 10,296 and the T value is very small (0,07) so the effect is very significant. From the statistical analyses it can be concluded that rupiah exchange, wage cost, electricity cost can influence the net working capital ratio. The influence of rupiah exchange per US dollar with the T value as much as 0,22 and the P value 0,828 is not really significant. The negative effect of weakening rupiah exchange on the net working capital ratio is not significant due to the small value of rupiah in the net working capital, at the average of 15% of the total working capital value ( Table 2).
The effect of wage cost with the T value as much as 0,15 and the P value 0,884 is not significant. Similarly the increase of electricity cost with the T value as much as 0,23 and the P value 0,815 is not significantly affective. In Table 3 it can be seen that the wage cost portion is only 4% of the total production cost and the electricity cost is 1%, and thus the influence is not significant.

The Influence of Rupiah Exchange, Wage Cost, and Electricity Cost on Business Profit Margin
From the data processed for 66 months the following regression equation can be obtained: Y t = -16,0-0,000558 X 1 + 0,00211 X 2 + 0,00876 X 3 -1,15 X 4 -1,25 X 5 + 0,146 X 6 + 0,115 X 7 + 0,0663 X 8 -0,0142 X 9 -0,00489 X 10 + 0,477 Y t-1 From the regression equation it can be assumed that eleven independent variables can influence business profit margin. The profitability ratio regression shows that weakening rupiah exchange per US dollar as much as 1 rupiah will reduce the business profit margin as much as 0,000558 %. The effect of wage cost shows that the increase of wage cost for Rp. 1000 will increase the business profit margin as much as 0,00211%. The influence of electricity cost per one rupiah per Kwh will increase the business profit margin as much as 0,00876%. The influence of average increase of raw material price as much as 1 US dollar per Kg will reduce the business profit margin as much as 1,15 %. The increase of maklon service cost as much as 1 US dollar per Kg will reduce the business profit margin as much as 1.25 %.
From the sales point of view, the regression equation shows that the average increase of previous local sales price for 1% will increase business profit margin as much as 0,146% (Table 4). whereas every increase of 1% of average export sales price will increase business profit margin as much as 0,115%. One percent growth of local sales volume from the previous period will increase business profit margin as much as 0,0663%, but one percent growth of export sales volume from the previous period will reduce business profit margin as much as 0,0142%. The ratio of previous net working capital also influences current business profit margin, where one percent of each increased ratio of previous net working capital will reduce current business profit margin as much as 0,00489%. Previous business profit margin as much as 1% will increase current business profit margin as much as 0,477%.  Table 4 shows that regression results for independent variables of business profit margin can be interpreted as follows: • 56,9% of the bsiness profit margin can be explained by eleven independent variables.

• Durbin-Watson test value as much as 2,09152 and
Durbin H test value as much as -1,206 between -1,96 dan 1,96 shows that there is no auto-correlation. • Table ANOVA identifies that the F test = 6,47 with the P-value 0,000 is smaller than α=0,05, meaning the independent variables give significant impacts simultaneously on the dependent variable, and it can be concluded that the regression is feasible. • The VIF value of the regression model for all independent variables below 10 each show there is no multicolinerity among independent variables. • Using the F test, the hypotheses H 0 :b 1 =b 2 =b 3 =b 4 =b 5 =b 6 =b 7 =b 8 =b 9 =b 10 =b 11 =0 towards H 1 : at least one of b≠0, shows that the regression coefficient is not the same as nil and the P-value=0.0000 is smaller than α=0.05, meaning that H0 is resisted and H1 is accepted.
From the statistical analyses it can be concluded that rupiah exchange, wage cost, and electricity cost can influence business profit margin. The influence of rupiah exchange per US dollar with the T value 0,98 and the P value 0,329 is not significant. Net working capital portion in rupiah is at the average 10% of the total working capital (Table 2), so 1% weakening rupiah per US dollar will give influence as much as 0,15%.
The influence of wage per capita increase with the T value as much as 1,73 and the P value 0,09 is not significant. The influence of electricity cost increase with the T value as much as 0,95 and the P value 0,344 is not significant. The positive impacts of the increase of wage cost and electricity cost on business profit margin will happen because of the increase of employees' productivity and the efficiency of electricity utilization as can be seen in Table 5.

Influence of Rupiah Exchange and Working Capital on Return on Asset
From the results of regression analysis, independent variables of rupiah exchange fluctuation per US dollar, receivables age, inventory age and loan age, and the previous ROA period towards ROA dependent variable, the following equation can be obtained: Y = 7,35 -0,0438 X 1 -0,0142 X 11 -0,00608 X 12 + 0,00095 X 13 + 0.319 Y t-1 Each one percent weakening rupiah will reduce ROA as much as 0,0438%. The T value as much as 2,45 and the P value 0,017 so that the weakening rupiah exchange can give a significant impact on the ROA. Table 6 gives an illustration that weakening rupiah exchange per US dolar as much as 1% will reduce the total assets as much as 0,18% and reduce business profit margin as much as 10% so that overall it will reduce ROA significantly.
Receivables age gave a negative impact on the ROA. The increase of receivables age for one day would reduce ROA 0,0142%. The T value as much as 4,02 and the P value 0,000 gave a very significant influence. The increase of receivables age caused a risk that the accounts receivables would be greater, and thus would reduce the company's profit.
Evry one day increased time would reduce ROA as much as 0,00608%. The T value as much as 2,29 and the P value 0,026 would give a significant impact. The higher the inventory value indicated the unproductive use of the stored fund due to unsold inventory, and thus had a potential decline in the inventory quality. The provision cost for inventory quality decline would reduce the company's profit.
The increase of business loan age for one day would increase ROA as much as 0,00095%. The T value as much as 0.4 and the P value 0,688 would have no significant effect. If the accounts payable could be put off any longer, there would be a chance to get payment from the customers, and thus the company would not need to propose a loan.
The increase of previous ROA for 1% would increase the current ROA as much as 0,319 %, the T value as much as 3,36 and the P value 0,001, so the the impact would be very significant.   • Using the F test, the hypothesis H 0 :b 1 =b 2 =b 3 =b 4 =b 5 =0 towards H 1 : at least one of the b ≠ 0, shows that the regression coefficient is not the same as nil and the P-value = 0,0000 is smaller than α=0,05. This means that H 0 is resisted and H 1 is accepted. This also means that all variables simultaneously affect the dependent variable significanly. • The Variance Inflation Factor (VIF) value for variables of receivables age, inventory age, loan age, and previous business profit margin is below 10 each so that it shows that there is no multicolinerity among the independent variables.

Managerial Implications
From the research it is found out that weakening rupiah exchange rate will reduce the net working capital ratio. The biggest contribution for the exchange gap happens because of the high rate of the valueadded tax of accounts receivables. To reduce impacts from weakening rupiah exchange, the company must accelerate the value-added tax of accounts receivables to the government by proposing the low risk facility so that it can accelerate restitution from 15 months to 3 months.
The increase of minimum wages can minimize the impacts by optimalizing the workers' number and improving the productivity by increasing the labour working hours. Efficiency on the increase of other labour costs due to the increase of minimum wages must be carried out especially in the health cost aspect.
The scheme for reimbursing the health cost on the bases of modified main wage must be changed according to BPJS program so that it can reduce health cost significantly. To anticipate the impacts of electricitybase-cost, the company must be efficient in electricity usage.
To accelerate receivables age, the company must carry out administrative steps by accelerating goods delivery and invoice, avoiding invoicing error, increasing communication with customers, coordinating well with sales division and credit control, and delivering the list of credit due date to customers.
To accelerate inventory age, the company must be able to manage inventory appropriately according to the needs and safe inventory level. Accuracy in making sales projection can eliminate excess supply. To increase sales accuracy projection, the company muct carry out intensive communication with customers so that it can monitor the present market condition. Production control using lean manufacturing will increase efficiency in using materials.
To extend the debt terms, the company must get longer payment terms. Cooperation with suppliers and banks can be carried out by making an agreement of Non Recourse Discounting (NRD) on the balance of debt so that the suppliers can get payment according to the due date, but the company will have a longer time to pay off their liabilities to the bank.

Conclusions
Weakening rupiah exchange will give a negative impact on the net working capital, business profit margin, and return on asset. The company's financial report using functional currency of US dollar will be influenced by the fluctuation of rupiah per US dollar. The result of this research is in line with the result of the research conducted by Huang and Vlady (2012), i.e. the translation to functional currency will give positive impacts in terms of accounting and economy. The impact of translating the financial report to functional currency will give a profit as well as loss difference fron the exchange rate gap. In line with the research result of Mehtad (2013), exchange rates will influence the company's profitability.
The effect of wage cost and electricity cost on the ratio of the net working capital is positive. Wage cost and electricity cost are production cost that can add the value of inventories. The effect of the increase of production cost and electricity cost on the company's profit margin is positive, because of the employees' increased productivity and efficiency of electricity usage. The effect of both variables on the ratio of net working capital and business profit margin is not significant.
Business receivables age and inventory age do not give a significant impact on the ROA. However, business loan age has an insignificantly positive impact on the ROA. By accelerating invoicing, minimizing inventory value and slowing down payment to suppliers, the company can improve its performance.
Negative relationship between net working capital and profitability shows that managing working capital more efficiently will improve the company's profitability. The result of this research is in line with that carried out by Alipour (2011), Rahman (2011, Sutanto and Pribadi (2012), Manzoor (2013), Mekonnen (2011), Mengesha (2014), and Juliansyah (2009. The negative relationship between receivables age and profitability shows that accelerating the accounts receivables will improve cash holding and thus improve the company's performance. This is in line with the research conducted by Ray (2012), Vural, Sokmen, and Cetenak (2012). The negative impact of receivables age on profitability is not in line with the research result found by Agyei and Yeboan (2011).
The negative impact of inventory age on profitability shows that eliminating supply will push more sales so that inventory investment will become more efficient. The negative impact of inventory on profitability is in line with the research result found by Ching et al. (2011), Raheman et al. (2010, and Quayyum (2011).

Recommendations
From the results of this research it can be seen the significant impact of local and export sales volume on the ratio of net working capital and the significant impact of export sales price and local sales volume on profitability). However, the increased volume of export sales will reduce overall business profit margin. The company's management must be able to increase volume of local sales and propose a request to increase export sales price to the company group.
The company's management can minimize the risk of weakening rupiah exchange per US dollar by pulling down (bringing down) monetary asset balance so that the effect of translation to the reporting currency can be minimized.