THE COMPANY’S PROFITS ARE FALLING AND THERE IS A BUILD-UP OF INVENTORY WITHIN THE PRODUCTION PROCESS. EVIDENCE OF BRALIRWA LTD, RWANDA 2013-2019
Authors:
Ingabire Aline, (MBA ) & Bumbali Machiavel, (MBA)
Abstract:
This paper was conducted for examining the significance of build-up inventory within a company’s production process as a tool of recovering falling profit. Evidence was made to Bralirwa Ltd for its production performance in the last 7 years (2013-2019). Descriptive statistics methods were used (presentation of data as values, growth rate, average, shares and ratios) and correlative design was also used (correlation between inventory and profits). The researcher has used SPSS and Ms Excel for data compilation and analysis (mainly the organization of tables and figures). For hypothesis testing, the researcher has used both bivariate and linear regression analysis. The study findings have resulted that the cost of raw materials are negatively impacting profits as it contributed -26.6% to RONA, -32.7% NP and -52.2% to EBIT respectively and it is not statistically significantly correlated to both indicators of profitability. This negative correlation is again between profitability indicators to Non-returnable packaging costs and spare parts costs as well as costs of work in progress (-30.4% to EBIT). Meaning that, for increasing falling down profit in the company’s production process, there is a need to reduce or to manage as well as possible the costs of raw materials, work in progress, non-returnable packaging and spare parts costs. Findings of this study have again shown that to ensure that falling down the profit of the company was taken up growing, there is need to manage finished goods, goods for resale and other inventories. Finished goods contributed 18.4% to RONA, 30.3% to NP and 62.8% to EBIT. GFR contribute 10.5% to RONA, 17.5% to NP and 18.2% to EBIT and Other Inventories (OI) contribute 93.1% to RONA and 85.7% NP. However other inventories (as not all defined) may negatively affect the EBIT (-15.9%). All in all, it is true that once a company’s profits are falling, there is a build-up of inventory within the production process. Meaning that, for a company to ensure that profits are increasing over the years they should ensure proper management of inventories mainly minimization of cost of production and operational expenses. Companies also could ensure that goods for customers’ needs are available regularly in good and sufficient quality and quantity.