Abstract:
This study examines the impact of inventory management on financial performance, with
particular reference to companies listed in the CSE. Many researchers have explored the
effects of inventory management on financial performance globally. However, there is no
consensus among researchers regarding the impact of inventory management on financial
performance, as studies have identified both positive and negative relationships. The study
population comprised all the companies listed in the CSE. This study focuses on 290
companies listed on the Colombo Stock Exchange that are relevant to this topic. One hundred
and sixty-five companies listed in CSE were sampled as per the Morgan table. The study
covers five years from 2018 to 2022. This study aims to determine whether inventory
management affects the financial performance of listed companies in Sri Lanka. The data were
collected from 108 companies. Data on companies listed on the Colombo Stock Exchange for
five years, from 2018 to 2022, were collected. According to this study, descriptive and
inferential analyses, which include multiple regression and correlation analyses, were used to
analyze the data. There are four critical variables, inventory turnover, inventory-to-sale ratio,
gross margin return on investment, and inventory day, which were taken as the independent
variables. The return on assets and return on equity are used as dependent variables for
measuring financial performance. In conclusion, this study provides significant insights into
how inventory management practices affect the financial performance of companies listed on
CSE. The findings underscore the importance of strategic inventory management in
optimizing ROA and ROE, offering practical recommendations for managers and investors,
while highlighting areas for future research to build on these insights. However, this study
was limited to companies listed on the CSE, which may not be representative of other markets.
The generalizability of these findings to other contexts may be limited. In addition, the
analysis is based on a specific period, which may not capture the long-term trends or effects
of economic fluctuations.
