EMPIRICAL EXAMINATION OF THE ASSOCIATION OF INVENTORY CONVERSION PERIOD AND GROSS PROFIT MARGIN OF BEVERAGE, FOOD AND TOBACCO COMPANIES LISTED IN COLOMBO STOCK EXCHANGE

Vinasithamby Sritharan

Abstract


Inventory is a vital part of current assets mainly in manufacturing and business concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves carrying or holding costs lengthways with opportunity cost. Therefore, inventory conversion period plays a crucial role in balancing the benefits and cost or disadvantages associated with holding inventory. Effective and efficient inventory conversion period goes a long way in successful running for survival of a business firm through maximizing the profit. Given the milestone contribution of the beverage food and tobacco sector firms to the economy of Sri Lanka, this research is necessary to evaluate the effects of inventory conversion period on the gross profit of the beverage food and tobacco sector firms in Sri Lanka. A panel data from 2011 to 2015 was gathered for the analysis from the annual reports of 20 beverage food and tobacco sector firms as sampled firms listed at Colombo Stock Exchange (CSE). The multiple regression model was applied in the data analysis to find out the relationship between inventory conversion period and firm’s gross profit margin. The independent variable used as inventory conversion period and gross profit margin used as dependent variable. The results provide a significant positive relationship between inventory conversion period with gross profit margin. The study recommends that the beverage food and tobacco sector firms in Sri Lanka should strive to ensure that the right stock is kept in their warehouses to run profitably through increasing the gross profit and hedge against excessive holding cost and stock-outs.

Keywords: Inventory; inventory conversion period; gross profit margin; Colombo Stock Exchange


پاراگلایدر Full Text: PDF

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

ISSN : 2251-1555