Inventory Management and Financial Performance: Efficiency Level Investigation of Listed Food & Beverage Manufacturing Companies
Efficient inventory management is key to the success of every business, specifically the manufacturing firms which make use of all the three classes of inventory; either as raw material, work in progress or finished goods. This study investigated the effect of inventory management on net operating profits of listed Food & Beverage manufacturing companies from 2009-2018. The main aim was to measure how average days to sell inventory, inventory turnover rate, and inventory conversion period efficiently affect net operating profit of these companies. Ex post facto research designed was employed, and data were obtained from the published financial reports of the firms under study, while the analytical techniques used for the study were the descriptive statistics, unit root test and panel regression model. Findings revealed a significant positive effect of average days to sell inventory and inventory turnover on the net operating profit of the listed manufacturing firms. However, inventory conversion period showed an inverse relationship with net operating profit of the firms. The study concluded that inventory management is an integral part of a firm’s existence, as a mismanagement of inventories may lead to serious financial problems and in the long run, threatens the going concern of these firms. It was recommended that, managers of manufacturing firms should adopt current inventory forecasting techniques that will help them estimate the desirable inventory levels to hold at any given time, identify fast or slow-moving items as this will always ensure a low average days to sell inventory. Furthermore, manufacturing firms should adopt a perpetual inventory control system as described in IAS 2, to enable them track inventories on real-time basis.