EFFECT OF INVENTORY MANAGEMENT ON THE PROFITABILITY OF INDUSTRIAL GOODS FIRMS IN NIGERIA

This study investigates the effect of inventory management on the profitability of listed industrial goods firms in Nigeria (2020-2024), using the Theory of Constraints as its framework. An ex post facto panel design was adopted, relying on secondary data from annual reports of firms listed on the Nigerian Exchange Group. Of the thirteen firms in the population, seven met the criteria of being listed before 2020 with complete reports for the study period. Profitability was measured by Return on Assets (ROA), while inventory management was assessed through Inventory Conversion Period (ICP), Inventory Turnover Ratio (ITR), and Inventory to Sales Ratio (ISR), with firm size as a control variable. Analysis employed panel data regression, descriptive statistics, and the Hausman test. Results show ICP had a positive but insignificant effect on profitability; ISR had a significant negative effect, indicating excessive inventory relative to sales reduces efficiency; and ITR had a negative but insignificant effect, suggesting high turnover alone does not guarantee better performance. Overall, inventory management significantly influenced profitability, highlighting the need for operational alignment. The study recommends adopting optimization models such as Economic Order Quantity (EOQ) and Just-In-Time (JIT), monitoring inventory-to-sales ratios, and enhancing manager training for improved asset utilization.