Working Capital and Effect on Financial Performance of The Energy Sector

Abstract

Background: Energy transition is a new threat to the energy sector, which contributes greatly to the Indonesian economy through state revenues, employment absorption, and foreign exchange. In making the energy transition, business diversification, or when exploring different areas, the company will issue capital expenditure and calculate its financial capacity to arrange financing.
Purpose: This study analyzes the impact of working capital on company performance in the energy sector and determines the effects of EPU) and COVID-19.
Design/methodology/approach: This study used data from the financial reports of energy sector companies on the company's official website from 2018 to 2022. The research sample was selected based on purposive sampling techniques using a nonprobability sampling method. Regression analysis was used to determine the effect of working capital on company value with EPU and COVID-19 as moderating variables using E-Views 12 software.
Findings/Result: The results indicate that there is a significant relationship between working capital and financial performance in the energy sector. Furthermore, the Economy Policy Uncertainty (EPU) ratio does not have a significant effect of working capital variables on the long-term profitability of energy sector companies in Indonesia. COVID-19 is also said to moderate the effect of working capital variables through NWC on the short-term (ROA) of energy sector companies in Indonesia.
Conclusions: The working capital has a significant influence on the short- and long-term profitability of companies, including the net working capital (NWC) and cash conversion cycle (CCC). 
Originality/value (state of the art): Financial managers must understand the internal and external factors that influence working capital management to ensure sufficient working capital levels for a company to remain resilient and competitive (Haron & Nomran, 2016). This study also examines how Economic Policy Uncertainty influences the relationship between working capital management strategies and company value.

Keywords: Working Capital, Net Working Capital (NWC), Cash Conversion Cycle (CCC), Return on Assets (ROA), TOBIN’S Q, Economy Policy Uncertainty (EPU), COVID-19