INVENTORY COST AND PROFITABILITY OF LISTED BREWERY COMPANIES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Stock or Inventory constitutes a substantial proportion of the current asset group. It represents investments made for obtaining a return (Duru, Oleka & Okpe, 2014). Inadequate inventory has an adverse potential effect on the smooth running of the business, while excess inventory involve extra cost, which can reduce the firm’s profits (Panigrahi, 2013). Excessive stock is not desirable for longer periods because high inventory levels increase carrying cost and as inventory is increases; the profitability decreases (Priyank & Hemant, 2015). Hence, a suitable inventory control strategy will help in ensuring that the firms always keep an optimal amount of assets. Freeing frozen amounts in the form of stocks or inventories increases the firm’s efficiency in the use of its resource (Ziukov, 2015). As such, a well-functioning inventory system has a great effect on total firm’s performance as well as that of the firm’s managers (Akindipe, 2014). Inventories are part of current assets, which are convertible to other forms of working capital (cash and other receivables) in less than one year (Milicevic, Davidovic & Stefanovic, 2010). The theory of inventory management involves making decisions that are in line with basic trade off among firm’s objectives, costs and other constraint (Mathuva, 2013). The economic order quantity theory, suggests that firms should maintain the quantity of inventory which provides the lowest total holding cost and acquiring cost (Milicevic, Davidovic & Stefanovic, 2010). Thus, inventory management is vital to for an effective and efficient firm. It is also important since it helps the firm in determination of the optimal amount of materials and goods a firm can hold at any given time (Kumar & Bahl, 2014). Profit of an organization can easily be maximized with the help of an effective inventory management system in places. Profit maximization is all about cost minimization and revenue maximization. An effective inventory management improves the firm’s total performance through matching inventory management practices and a competitive advantages especially now that most organizations operates in a more competitive industries or sectors all over the world (Mahidin et al., 2015). The main goal and objective of inventory management system is to keep at the necessary required inventory at any time so that production runs smoothly without interruption whatsoever (Panigrahi, 2013). Inventory is the second largest assets as shown in the statement of financial position in brewery industry. It’s only exceeded by equipment and the physical facilities (Eneje, Nweze, & Udeh, 2012).

INVENTORY COST AND PROFITABILITY OF LISTED BREWERY COMPANIES IN NIGERIA

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Chapters: 1 - 5, Abstract, References
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Number of Pages: 57

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