Page 71 - FREN-C2021 PROCEEDINGS

(NPM) explains how much after-tax profit the business makes for every dollar it generates in revenue
or sales. Profit margins differ by industry, but all else being equal, the higher a company's net profit
margin relative to its competitors, the better (Boigues, 2016). The results of the previous studies show
a positive and significant relationship between profitability and efficiency the reason behind these
results may be that ROE and NPM both can measure company efficiency (Alarussi & Alhaderi, 2018).

Liquidity:
Liquidity is a measure of a company's ability to manage its current assets to meet its short-term
obligations. Different ratios, such as current ratio, quick ratio, and networking capital, can be used to
evaluate the firm's liquidity. Another definition of liquidity of the firm is also referred to on how
easily assets can be converted into cash. Liquidity Ratio uses a quick ratio. According to (Demirgünes,
2016), this ratio uses assets that will turn into cash faster, and because inventory is considered the
longest-running current asset to turn into money, assets that are included in addition to money are
securities and receivables. Previous research has also used the current ratio to assess short-term
liquidity risk. It's also because the current ratio is easier to calculate. The current ratio has sufficient
bankruptcy prediction. According to (Adi et al., 2020), current assets can be calculated by current
assets divided by current liabilities and time with 100. Previous research discovered a positive
relationship between liquidity and efficiency, indicating that increased liquidity results in increased
efficiency. (Sunjoko & Arilyn, 2016).

Leverage:
According to (Nadeem et al., 2017) states that the leverage ratio is a measure of the number of assets
financed using liabilities. The leverage ratio shows the company's ability to pay obligations if the
company is liquidated. Previous research shows that the coefficient on leverage is insignificant but
shows a positive sign, meaning that an increase in leverage leads to higher efficiency (Iskandar,
2020). The Leverage Ratio employed Debt/Equity Ratio and it used to evaluate all debt to all equity.
The Debt to Equity Ratio (DER) is a ratio that analysts and investors frequently use to determine how
much debt a company has in comparison to the equity owned by the company or shareholders. If the
company's equity is unable to pay off its debt, the company will use its assets to help cover the
company's debt and to determine which capital of the company is used as debt collateral. For
creditors, the greater the ratio will be unprofitable because the higher the risk of failure that may be
borne by the company (Yameen et al., 2019). This indicates that have a higher level of debt leads to a
decrease in firm performance (Makhlouf et al., 2017)

Methods
Target Population and Data Collection Procedure
The target population for the research was all Shariah Compliant firms listed under the consumer
products sector on Bursa Malaysia. Financial data of the selected samples are extracted from the
published annual reports obtained from Bursa Malaysia’s website and online databases such as
DataStream and Eikon. For each of the review periods, the information on the sample’s financial data
is extracted as of each financial year-end. Subsequently, the financial ratios of all the variables
(dependent and independent variables) are computed using the identified formulas. The final sample
consists of 30 firms with a total of 180 observations.

Model Specification
This study aims to investigate the factors affecting the working capital of shariah-compliant forms
listed under the consumer products sector. This paper specifies and estimates the following baseline
regression model for all firms.

EFF it = β0 + β1PROF it + β2LIQ it + β3LEV it + β4BOD it+ εit (1)

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