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Research Article

EEO. 2019; 18(2): 959-976


THE RELATIONSHIP BETWEEN INVENTORY MANAGEMENT AND FIRM’S PROFITABILITY: EVIDENCE FROM CEMENT INDUSTRY OF PAKISTAN;

Ahmad Hassan, Dr.Wiqar Ahmad, Abid Khan, Rizwan Ullah, Madeeha Qayum.




Abstract

The primary motive behind this study is to find out how Pakistan cements industry manage
and analyze their inventory in a profitable way. Manufacturing companies that using these
techniques and practices having magnificent financial outcomes. Keep in view the
importance of these profitable techniques ,we practice thesein cements firms a sample size of
seven companies taken out of 23 firms listed in Pakistan stock exchange over the period of
2008-2017. The data iscollected from annual reports available on the financial statements.
The proxies forinventory management are used as inventory conversion period and
inventory turnover and the measurement of profitability is done by gross profit margin and
gross operating profit. Moreover the natural log of sale, current ratios and financial debt
ratios measured for liquidity, firm size and leverage respectively and taken as a part of
control variable. The multi regression and Pearson correlation analysis are used to analyze
data through spss (version 22). The results of the study indicate that there is strong inverse
relation between inventory conversion period and cements firm’s profitability. This paper
also indicated a direct and positive relation between inventory turnover and profitability
(gross operating profit), however, insignificantly associated with gross profit margin.
Furthermore, in this study gross profit margin and gross operating profit are strong
positively correlated to both current ratio and firm size also. Therefore an effective and
efficient assessment of inventory increases the corporate profitability.

Key words: corporate profitability, growth, operational area, leverage, liquidation, cements industry, inventory management






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