Impact of Firm’s Input Costs on Firm Profitability: Evaluation of the Nigerian Brewery Industry.

Abstract

A major problem facing brewery companies is the growing trend of input costs which erodes business profit and as such leads to constant shut down of brewery factories in Nigeria. Given the important contributions of the brewery sector to the Nigerian economy, this research deems it necessary to evaluate the effect of input costs on the profitability of brewing firms in Nigeria. A cross sectional data was gathered for the analysis from the annual reports of the sampled brewery firms for a period of 1999 to 2010. Measures of profitability are examined and related to proxies for the inputs cost assumed by brewers. The Ordinary Least Squares (OLS) stated in the form of a multiple regression model was applied in the analysis. The study revealed that the focal variable RSGAE (Ratio of Selling and General Administrative Expenses) designed to capture the effect of a company's operating expenses on profitability is statistically positive and impacts on profitability of the brewery firms in Nigeria. Therefore, cost of sale is a major factor to be contained with by Nigerian brewers in enhancing or boosting their profitability.

Keywords: Brewery firms; gross profit margin; selling expenses; general administrative expenses; turnover, cost of sale.