EFFECT OF OPERATING COST ON EARNINGS OF MANUFACTURING FIRMS IN NIGERIA (A STUDY OF NIGERIAN BREWERIES PLC)

MMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 5.1 Synopsis 23 5.2 Conclusion 23 5.3 Suggestion 24 5.4 Proposal for Additional Research 24 References 25 1 CHAPTER ONE INTRODUCTION Study Background Since operating costs are expenses related to the day-to-day upkeep and management of a corporation, manufacturing organisations have experienced an unexpectedly high operating cost with the resulting decrease in profitability. Cost reduction is a deliberate, constructive strategy to cut expenses and perform a corrective action through an ongoing process of cost and function analysis to better optimise the use of production elements. The cost of goods sold, operational costs, and overhead are all included in a company's overall operating costs. A company's income statement shows operational income, which is calculated by subtracting operating costs from revenue (Chris, 2019). In addition to running costs, businesses also need to monitor non- operating costs, such loan interest. According to Thomas (2017), almost all businesses have continuous running expenses. Capital outlays are typically excluded from operating costs, which can include a wide range of expenses, including accounting and legal fees, bank charges, sales and marketing costs, travel costs, entertainment costs, non-capitalized R&D costs, office supply costs, rent, maintenance and repair costs, utility costs, and salary and wage costs. Additionally, even while working remotely could help keep costs down, full-time employees and physical space are still necessary. Rent, utilities, salaries, office supplies, and business travel are all considered operating expenses while operating a business. Operating costs vary by industry and within an industry depending on the business model that a company chooses to use. The interest cost of raising the capital is used to calculate the cost of capital utilised to buy fixed assets. Cost measurement is of critical importance to businesses. There are numerous obvious and easily quantified cost kinds. 2 The sustainability of a business is determined by its profitability. One kind of expense that lowers nett sales in order to obtain nett profit is operating expenses.A company's profitability is gauged by its nett profit margin. The operating margin illustrates the extent to which expenses unrelated to manufacturing the product for sale are deducted from earnings. In these situations, the quantity of output and the cost of input are directly correlated. In other words, the correlation between input costs and output units might not be readily apparent or measurable. The relationship between expenses and output might vary. Production-unrelated costs include personnel, general business, and administrative costs. Any nation implementing an export- oriented industrialisation policy in an open economy must prioritise profitability factors, particularly in the manufacturing sector, as a key tactic for economic growth (Adebayo & Onyeiwu, 2018). Fixed expenses and variable costs are the two halves of a business's operational costs, and they differ significantly. According to John (2017), cost reduction is the process of removing waste and streamlining procedures in order to lower overhead and/or the cost of goods sold. Improving the bottom line is made possible by understanding how to measure operating costs. A fixed expense is one that must be paid regardless of the activity or performance of the business and is unaffected by changes in sales or productivity. Economies of scale can be attained with the aid of fixed costs. A variable cost is a business expense that varies according to production output, according to Will & Janet (2020). The amount of money a business makes and the amount it spends to run is what determines its profits. Both raising revenue and lowering operating expenses can boost profit. In general, reducing expenses appears to be a simpler and more accessible method of boosting profitability. According to Alicia (2020), business losses and expenses might cancel out business revenue. The majority of commercial entities are driven by the same profit motive. Cost of goods sold and operating expenses are used to calculate operating 3 costs. The primary commercial operations that a business engages in to generate money are known as operational activities. According to the Corporate Finance Institute (CFI, n.d.), operating expenses are crucial for evaluating a company's operational performance. Profitability will be directly impacted by cutting operating expenses. Profitability is occasionally used to gauge a company's efficacy and efficiency. Profit is crucial; higher profits indicate better resource management, while lower earnings might impede a company's growth and make it more likely that certain commitments or goals won't be fulfilled. In light of this, this study uses Nigerian Breweries Plc to investigate how operating costs affect the profits of Nigerian manufacturing companies. 1.2. Problem Statement A key component of manufacturing companies is cost reduction, which focuses on how to arrange goods as they proceed through various processing stages while minimising bank fees and travel expenses. Any company organization's only goal is to increase corporate growth by reducing expenses and increasing revenue. Another dilemma arises because most business owners think that increasing sales is the greatest method to turn a profit. Due to the increasing quantity of effort required, there must be a matching increase in cost in order to increase sales. It is necessary to reduce these rising expenses. As the economic times required that organisations make the right management decisions if they were to survive, opportunities also emerged where companies were under increasing pressure to scrutinise all parts of the business processes and identify new areas of efficiency for value per unit products. The economic crisis has created enormous challenges, such as high bank charges, poor growth, high travel expenses, lack of value per unit, high selling costs, and poor income for companies. Additionally, manufacturing companies currently work in a volatile economic 4 climate that is marked by depreciation, fierce rivalry by capacity utilisation, and a high rate of inflation. Many businesses thus find it difficult to sustain acceptable profits. Nigerian Breweries Plc is used in the study to investigate how operating costs affect the profits of Nigerian manufacturing companies. 1.3 The study's objectives This study's main goal is to investigate how operating costs affect Nigerian manufacturing companies' profits. The particular goals are to: i. Assess how administrative costs affect Nigerian manufacturing companies' earnings per share. ii. Calculate how selling and distribution costs affect Nigerian manufacturing companies' earnings per share. iii. Determine how bank fees affect Nigerian manufacturing companies' earnings per share. 1.4 Research Issues This study was guided by the following research questions: i. How much does the cost of administration impact Nigerian manufacturing companies' earnings per share? ii. How do selling and distribution costs affect Nigerian manufacturing companies' earnings per share? iii. How much does bank fee impact Nigerian manufacturing companies' earnings per share? 1.5 Hypotheses for Research The following theories were developed and expressed in null based on the particular goals: i. Administration costs have no statistically significant impact on Nigerian manufacturing companies' earnings per share. 5 ii. The cost of selling and distribution has no statistically significant impact on the earnings per share of Nigerian manufacturing companies. iii. Bank charges have no statistically significant impact on the earnings per share of Nigerian industrial companies. 1.6 Importance of the Research Among other things, the following will greatly benefit from the study's findings: Nigerian manufacturing company management: The management of Nigerian manufacturing companies would receive assistance in making wise judgments regarding operating expenses since their impact on profits could have disastrous consequences. Additionally, it makes it easier for management to adjust to changing circumstances and make the most use of available cash. Corporate managers will therefore greatly benefit from these research findings since they will provide them with new information to help them choose the operating costs that will maximize the firm's profits. Investors and shareholders: The study's conclusions will help investors and shareholders get what they want. To choose which company to invest in, investors must understand how operating expenses and profits policies relate to one another. Scholars and researchers: It broadens their understanding because the study's conclusions illustrate how operating expenses affect Nigerian manufacturing companies' profits. Furthermore, comparing the conclusions of this study to those of other researchers will assist scholars in determining whether or not the findings are consistent. The possible profits issues that could result from poor operating cost decisions will then be inferred. The University will have access to a copy of this work in order to use it as empirical support or as a spin-off for researchers pursuing related fields. 6 Nigerian government: This study will be very helpful to the Nigerian government in developing policies that focus on operating costs in order to maximise performance. The results of this study will be used by the Nigerian Exchange Group (NGX) and the Security and Exchange Commission (SEC) to ascertain the impact of operational costs on manufacturing companies that are listed on their market. For regulatory purposes, this study will give regulators the information they need to estimate profitability based on operational expenses. 1.7 The study's scope The focus of this study is Nigeria, specifically determining how operating costs affect the profits of Nigerian manufacturing companies. Time series data spanning ten (10) years, from 2014 to 2023, were used in this study to obtain the earnings of Nigerian Breweries Plc. The availability of data led to the selection of this time frame. As this study restricts its scope to the variables of interest—operating cost: administration cost (AC), selling and distribution cost (SDC) and bank charge (BC), and earnings to be measured and limited to earnings per share (EPS)—an effort has also been made to determine the long-term relationship for these periods in the analysis. 1.8 Research Restrictions The difficulties in gathering the necessary data were a significant limiting issue for this investigation. This ran counter to the original plan, which called for covering each of the five (5) specified brewing companies (Appendix I). Additionally, this study is confined to one (1) chosen company because the Annual Reports and Financial Statements for all listed food and beverage companies for the ten (10) years from 2014–2023 were not fully available. Overall, this study's methodology, findings, conclusions, and dependability are unaffected by the aforementioned restriction.