Financial Management as a Determinant of Profitability: a Study of Selected Pharmaceutical Firms in Nigeria.

Abstract

This study examined the relationship between firm financial management techniques and profitability. Six variables including Long-term-debt to Equity ratio (LTDER), Inventory turnover ratio (ITR), Debtors’ turnover ratio (DTR), Creditors’ velocity (CRSV), Total assets turnover ratio (TATR) and Net profit margin (NPM). Profitability as a dependent variable is represented by Net profit margin (NPM) while LTDER, ITR, DTR, CRSV and TATR were used. Descriptive statistics and multiple regressions were applied to data obtained from the annual financial statements of sampled pharmaceutical companies quoted on the Nigerian Stock Exchange. The results of the analysis showed that there is a positive relationship between LTDER, DTR, TATR and profitability while ITR and CRSV have negative relationships with profitability. Given the findings, the study recommends that the inventories of the company should be monitored more frequently to prevent stock-out or over stocking conditions of their products, that creditors’ velocity should be at a point where the creditors and purchases are equal in order to take the advantage of credit facility and any discount associated with prompt payment for goods to increase the profitability of the company.

Keywords: Profitability, Determinants, Pharmaceutical industry, Descriptive research, Multiple regressions, Long-term-debt to Equity ratio, Inventory turnover ratio, Debtors’ turnover ratio, Creditors’ velocity, Total assets turnover ratio and Net profit margin.