Inventory conversion period and profitability relationship of the listed pharmaceutical firms of Jordan

Abstract: The study objects for determining whether or not a relationship exists between inventory management of the listed pharmaceutical firms at Amman Stock Exchange, and the profitability of these firms, and whether or not inventory management affects firm profitability. Only three pharmaceutical firms were found listed at Amman Stock Exchange by the end of 2020, and therefore, the annual data of the three firms along the period 2009-2019 were collected and used in the analysis and hypothesis testing. Inventory turnover and average inventory holding period were used as indicators for inventory management at a reciprocal form, whereas, return on assets was used as a measure of firm profitability. Using the Pearson correlation method, the analysis and hypothesis testing demonstrated that a significant positive relationship exists between inventory turnover and return on assets, and a negative significant relationship exists between average inventory holding period and return on assets. Moreover, using the ordinary least square method, the study shows that inventory management has a positive significant effect on firm profitability. More studies regarding inventory management and firm profitability relationships, are recommended to be performed on other manufacturing industries than pharmaceutical firms.

How to cite this paper

 Obeidat, M. (2021). Inventory conversion period and profitability relationship of the listed pharmaceutical firms of Jordan.Accounting, 7(7), 1731-1740.

Refrences

Beheshit, H. M., Grgurich, D., & Gelbert, F.W. (2012). ABC Inventory Management Support Systems With A Clinical Laboratory Application. Journal of Promotion Management, 18(4), 414-435, https://doi.org/10.1080/10496491.2019.1685622.
Capkun, V., Hameri, A. P., & Weiss, L. A. (2009). On the Relationship Between Inventory and Financial Performance in Manufacturing Companies. International Journal of Production & Operation Management, 29(8), 789-806, https://doi.org/10.1108/01443570910977698.
Canel, C., Drew, R., & Anderson, E.A. (2000). Just-in-Time is not Just for Manufacturing: A Service Perspective. Industrial Management & Data Systems, 100(2), 51–60, https://doi.org/10.1108/02635570010286104.
Chebet, E., & Kitheka, S. (2019). Effects of Inventory Management System on Firm Performance–An Empirical Study. International Journal of Innovative Science and Research Technology, 4(9), 34-242.
Farooq, U. (2019). Impact of Inventory Turnover on Profitability of Non-financial sector Firms in Pakistan. Journal of Finance and Accounting Research, 1(1), 34-51, https://doi.org/10.32350/JFAR.0101.03.
Folinas, D. K., Fotiadis, T. A., & Coudounaris, D. N. (2017). Just-in-time theory: the panacea to the business success?. International Journal of Value Chain Management, 8(2), 171-190. https://doi.org/ 10.1504/IJVCM.2017.085485.
George, E. (2019). A Study of the Impact of Inventory Management on Profitability of Firms with Special Reference to Steel Industry. International Journal of Basic and Applied Research, 9(5), 756-762.
Golas, Z. (2020). The Effect of Inventory Management on Profitability: Evidence from the Polish Industry: Case Study. Agricultural Economics, 66(5), 234-242, https://doi.org/ 10.1257/jep.5.1.73.
Goldman, A, (2010). Pareto Analysis: ABC Inventory. Available on Line at:
http://gaebler.com/Pareto-Analysis-ABC.Inventory.htm.
Grahame, I. (1998) Japanisation as mythology. Industrial Relations Journal, 29(1), 69–75. https://doi.org/10.1111/j.1468-2338.
Folinas, D. K., Fotiadis, T. A., & Coudounaris, D. N. (2017). Just-in-time theory: the panacea to the business success?. International Journal of Value Chain Management, 8(2), 171-190.
Koumanakos, D. P. (2008). The effect of inventory management on firm performance. International Journal of Productivity and Performance Management, 57(5), 355-369. https://doi.org/10.1108/17410400810881827.
Mulindabigwij, J. N., & Mulyungi, P. (2017). Effect of Inventory management on Financial Performance of Manufacturing Firms of in Rwanda: A Case Study of Bralirwa. International Journal of Science and Research, 6(10), 1368-1371.
Muchaendepi, W., Mbohwa, C., Hamandishe, T., & Kanyepe, J. (2019). Inventory management and performance of SMEs in the manufacturing sector of Harare. Procedia Manufacturing, 33, 454-461.
NdiranguKung’u, J. (2016). Effects of inventory control on profitability of industrial and allied firms in Kenya. IOSR Journal of Economics and Finance (IOSR-JEF), 7(6), 9-15. https://doi.org/ 10.9790/5933-0706010915.
Panigrahi, A. K, (2013). Relationship Between Inventory Management and Profitability: An Empirical Analysis of Indian Cement Companies. Asia Pacific Journal of Marketing and Management Review, 2(7) 107-120.
Parrish, R. H., Berger, B. A., & Features Submission, H. C. (1986). The Relationships Between Profitability, Inventory Efficiency, and Gross Margin Return on Investment in Alabama Community Pharmacies. Journal of Pharmaceutical Marketing & Management, 1(1), 11-26. https://doi.org/10.3109/J058v01n01_03.
Samanta, P. (2015). Inventory Management Available on Line at: https://www.researchgate.net/publication.
Shin, S., & Ennis, K. (2013). A Study of Relationship between Inventory Management Efficiency and Profitability: U.S. Manufacturing Industry. Proceedings of the 44th Decision Science Institute Annual Conference, Nov. 16-19, 2013, Baltimore.
Singh, G., & Ahuja, I.S. (2012). Just-in-Time Manufacturing: Literature Review and Directions. International Journal of Business Continuity and Risk Management, 3(1), 57-98, https://doi.org/10.1504/IJBCRM.2012.045519.
Vrat, P. (2014). Just-in-time, MRP and lean supply chains. in Vrat, P. (Ed.): Materials Management, Springer Texts in Business and Economics, New Delhi, pp.151–173, https://doi.org/10.1007/978-81-322-1970-5_9.

Journals

AC Volumes

Keywords

Authors

Countries

Accounting

Inventory conversion period and profitability relationship of the listed pharmaceutical firms of Jordan Pages 1731-1740 Download PDF

Add Reviews