The Impact of Inventory Management on Financial Performance in the Pakistani Pharmaceutical Sector: A Multivariate Analysis

Abstract

This study examines the relationship between inventory management practices and firm performance, specifically focusing on ROA & ROE as the measure of financial performance. Using regression analysis, we investigate the impact of various factors, including inventory turnover, capital work in progress, long-term borrowings, sales, Earnings Before Interest and Taxes (EBIT), and the current ratio, on ROE. Our findings indicate that inventory turnover and capital work in progress do not significantly affect ROE & ROA, suggesting that variations in these factors do not strongly influence a firm's return to its equity holders. However, we identify a significant negative relationship between long-term borrowings and ROE, indicating that higher levels of long-term debt may hinder a firm's ability to generate returns for shareholders. Furthermore, we observe a significant positive relationship between EBIT and the current ratio with ROE & ROA, emphasizing the importance of profitability indicators and liquidity measures in determining firm performance. These insights provide valuable guidance for businesses seeking to optimize their financial performance through effective inventory management and financial strategies.