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

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 ofseven 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 turno ver 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.