IMPROVING LIQUIDITY DURING COVID PANDEMIC OF PT KONE INDO ELEVATOR

• Main Author: Festa Uli, Santy
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/56877
• Institution: Institut Teknologi Bandung

Covid 19 has dragged the world economics down. Many companies struggled in 2020 and some of them went into bankruptcy as impact of Covid. KONE Indonesia (KIE) is one of the companies trying to survive in this prolong pandemic. The focus of the management shifted from growth to survival mode which in this case is liquidity. With the shrinkage of business size, many developer made temporary freeze in construction of new bulding and make the maintenance business become the backbone to support KIE. Maintenance business is very strong in term of profitability, but facing challenges in liquidity. The challenges are both internal and external issues in their account receivable. The prior management was focusing in the business growth and never put attention of their own liquidity. The high stock, poor quality of billing, and pressure for early payment from vendor are dragging the liquidty during this prolong pandemic. In order to find best solutions with less cost and high benefit, we will use Cash Conversion Cyle (CCC). CCC will cover DIO (days inventory out), DSO (days sales outstanding), DPO (days payable outstanding). As of December 2020, the CCC was 151 days which means it took 5 months from inventory received until Services & Maintenance (VA) invoices paid by customer. Based on actual Q1 2021 sales, we will try to see CCC impact by i. reducing DSO ; ii. extending DPO. The CCC will be compared with the financial result in income statement by seeing the improvement in EBIT against 2021 Budget. As of march 2021, For option 1 in DSO reduction implement advance payment for sparepart order, and enggaging with 3rd party collection agency. By implementing this alternative from January to March 2021, the new CCC is 111 days (improved by 40 days) main driven by shorter in DSO from 133 days to 111 days. With the low DSO, VA also benefits improvement in lower bad debt provision by -3% where EBIT improved from 30% (2021 budgets) to 32% (2021 adjusted forecast). While for option 2, the extending DPO will make favorable improvement in CCC by 57 days (from 151 days to 94 days with main driver DPO increase from 45 days to 90 days), but there’s additional investment required increasing cost so EBIT become lower from 30.1% to 29.4%. By seeing these 2 results, we will go option 1 as lower EBIT in option 2 won’t be acceptable by management team as this will lead further discussion for cost efficiency in fixed cost (employee restructuring), the market still not recovery yet from pandemic so there’s a high risk for not achieving the top line and impacting lower margin further.