%0 Journal Article
%T Financial Ratio Analysis as a Determinant of Profitability in Nigerian Pharmaceutical Industry
%A Enekwe Chinedu Innocent
%A Okwo Ifeoma Mary
%A Ordu Monday Matthew
%J International Journal of Business and Management
%D 2013
%I 
%R 10.5539/ijbm.v8n8p107
%X Financial ratio analysis is a vital one since the profitability of an enterprise is directly affected by such decision. The successful selection and use of appropriate financial ratio is one of the key elements of the firm¡¯s financial strategy. Hence, proper care and attention need to be given while such decision is taken. The purpose of this study is to examine the relationship between the financial ratio analysis and profitability of the Nigerian Pharmaceutical industry over the past eleven (11) years period from 2001 ¨C 2011. These financial ratio analyse have immense potentials to help organizations in improving their revenue generation ability as well as minimization of costs. The researcher used five (5) variables for the analyses such as: Inventory turnover ratio (ITR); Debtors¡¯ turnover ratio (DTR); Creditors¡¯ velocity (CRSV); Total assets turnover ratio (TATR) and Gross profit margin (GPM). Profitability as a dependent variable is represented by Gross profit margin (GPM) while financial ratio analysis stands as ITR, DTR, CRSV and TATR for independent variables. Secondary data were obtained from the financial statements (Balance sheet and Profit and Loss account) of the selected quoted pharmaceutical companies¡¯ financial statement. The data have been analyzed using descriptive research method and multiple regressions to find out the relationship between the variables. The results of the analysis showed that there is a negative relationship between all independent variables with profitability in the Nigerian pharmaceutical industry. It also revealed that debtors¡¯ turnover ratio, creditors¡¯ velocity and total assets turnover ratio have no significant relationship on the profitability of the company while only inventory turnover ratio shows a significant relationship with profitability. The results further suggested that only 17.8% of the independent variables are determinant factors of profitability in the enterprises sampled while 82.2% of the major factors are determine from other factors outside the independent variables. Based on the above premises, the researcher recommended that the inventories of the company should be checked and monitored more frequently by management to prevent out of stock syndrome or over stocking of their products. It is also recommended that creditors¡¯ velocity should be at a point where the creditors and purchases are equal in order to take the advantage of credit facility and any discount associated with prompt payment for goods to increase the profitability of the company. The management should utilize its assets ef
%U http://www.ccsenet.org/journal/index.php/ijbm/article/view/23553