The Effect of Inventory Management on Financial Performance of Quoted Pharmaceutical Companies in Nigeria

The Effect of Inventory Management on Financial Performance of Quoted Pharmaceutical Companies in Nigeria

CHAPTER ONE

1.1 Background To The Study

The effective management of stock is essential for the smooth running of an organization. This is because without enough stock, health services rendered to patients may be obstructed as a result of lack and insufficient drugs. According to (chopra and mendi 2007) many organization stock constitute one of the largest single investment in assets and to some extent some organizations have maintained high level of stock to enhance the continuous availability of stocks for the employees. Stock is also referred to as inventory which is defined as comprising of raw materials, work-in-progress, finished goods and supplies used for the production of an organization’s goods and services Coyle et al (2003). Stocks also consist of the number of units and value of stock of goods held by the organization. The holding of stock by organizations is to avoid the problem arising as a result of stock out. The Level of stock holding is determined by the organization’s operational needs, availability of capital, cost of storage, the need for detailed records through the use of store records and the time required to obtain deliveries of stock. With each of this factors considered, stock level can be determined for each item of stock which should be recorded in the stock records and as a policy no stock item should be released without an approved materials requisition form. On the operational level of business it is pertinent to institute policies on stock to address issues of uncertainty and variations. This is because the uncertainty and variability of the timing and content of information flow and goods flow leads to uncertain planning, which leads to stock outs, and delays and increased costs,. Gudum (2002). Consequently it is necessary for strategies to be applied at both the tactical and strategic levels of organizations which will stimulate their supply chain strategy to attain competitive strategy and excellence in order for this to be effective.. Financial performance is the determination of the firms effective utilization of its assets from its primary mode of business to generate revenues .It is the firm’s overall financial health over a given period of time. Financial performance is expressed as revenue from operations, operating income or cash flow from operations and sales. Also the firm’s financial statement can be used to determine the margin growth rates or any declining debt. The research therefore seek to investigate the effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria

1.2 Statement of the Problem

Financial performance is the determination of the firm’s effective utilization of its assets from its primary mode of business to generate revenues. It is the firm’s overall financial health over a given period of time. Financial performance is expressed as revenue from operations, operating income or cash flow from operations and sales. Keeping accurate records help firms reduce pilferages and theft as well as maintain ideal levels without distracting operations. Nyabwanga (2013) stated that both excessive and inadequate inventories are not desirable because excess inventories results in high stock holding costs and reduces the firm’s profitability while inadequate inventories disrupt firms operations (Atrill, 2006). According to Ashok (2013) the adequate and timely flow of inventory is imperative for the success and growth of any firm. Therefore the problem confronting the research is to appraise the effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria

1.2 Objectives of the Study

To determine the effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria.

Financial performance is the determination of the firm’s effective utilization of its assets from its primary mode of business to generate revenues. It is the firm’s overall financial health over a given period of time. Financial performance is expressed as revenue from operations, operating income or cash flow from operations and sales. Keeping accurate records help firms reduce pilferages and theft as well as maintain ideal levels without distracting operations.

1.3 Research Questions

What is the effect of inventory management on financial performance?

What is the effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria?

1.4 Significance of the Study

The study indicates the need for proper inventory management of the firm so as to facilitate in the attainment of financial objectives consequently it proffers an appraisal of The effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria

1.5 Research Hypothesis

Ho: The effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria is negative.

Hi: The effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria is positive.

1.6 Scope of the Study

The study focuses on the appraisal of the effect of inventory management on financial performance of quoted pharmaceutical companies in Nigeria.

1.7 Limitations of the Study

The study was confronted with some constraints such as logistics and geographical factors.

1.8 Definition of Terms

Financial statements of firms include income statements, balance sheets, statements of retained earnings and cash flows.

Balance Sheet shows the record of the firm’s assets and liability for a given period of time.

Income Statement provides the gross profit margin, the cost of goods sold, operating profit margin and net profit margin.

Cash Flow Statement

The cash flow statement shows is the reconciliation between net income and cash flow. It also states the source and uses of cash flow from investment, financing, and operations.

Financial performance is the determination of the firm effective utilization of its assets from its primary mode of business to generate revenues. It is the firm’s overall financial health over a given period of time.