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 organizations 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 organizations
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 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. 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 stockholding 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 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. 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.