An Evaluation of Inventory Management Practices Impact on Return on Asset: A Study on Beverage, Food and Tobacco Sector Listed Companies of Sri Lanka

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. Inventory management plays a crucial role in balancing the benefits and cost associated with holding inventory. Effective and efficient inventory management goes a long way in survival of a business firm. Inventory management practices effects on return on asset of the companies in beverage food and tobacco sector in Sri Lanka Colombo stock exchange at a great scope. A panel data from 2012 to 2016 was gathered for the analysis from the annual reports of 20 beverage food and tobacco sector firms considered. The multiple regression model was applied in the data analysis to find out the relationship between inventory management practices and return on asset. The variables used include inventory conversion period, operating cycle, current ratio, cash conversion cycle and return on assets. The results provide a significant positive relationship between inventory conversion periods and return on asset. In addition to that, cash conversion cycle was found significant negative relationship with the profitability measures of return on asset.

Keywords: Inventory Management; Beverage Food and Tobacco sector; Return on asset

DOI: 10.7176/RJFA/11-14-02

Publication date:July 31^st 2020