Abstract:
This study investigates the impact of inventory management practices on the financial
performance of listed food, beverage, and tobacco companies in Sri Lanka. It focuses
on key indicators, inventory conversion period, inventory turnover, and inventory
leanness and evaluates their effects on financial performance, measured by return on
assets. Furthermore, the investigation integrates firm growth, firm size, and
operational efficiency as control variables to enrich the analytical framework. The
population consisted of 44 firms listed on the Colombo Stock Exchange within the
food, beverage, and tobacco sector, from which 41 were selected as the final sample
based on data availability. The required data were gathered as secondary data sourced
from audited annual financial statements covering the period from 2018 to 2022. The
data were analyzed via descriptive statistics, correlation analysis, and panel data
regression analysis, followed by the fixed effects model, ascertained by the Hausman
Test. The analysis indicated that both the inventory conversion period and inventory
turnover have a significant and positive influence on return of assets, whereas
inventory leanness fails to show a statistically significant impact. Among the control
variables, firm growth and firm size were found to positively associate with financial
performance; conversely, operational efficiency did not reveal a significant
association. The results affirmed the strategic significance of effective inventory
management in boosting profitability. The study concludes that firms within the food,
beverage, and tobacco sector can enhance their financial performance through the
implementation of shorter inventory cycles and effective stock turnover. It advocates
for policymakers and corporate managers to prioritize the establishment of robust
inventory control systems to bolster financial outcomes and proposes extending
future research to encompass additional sectors or utilizing mixed methods for more
comprehensive insights.
