Beer

Topics: Generally Accepted Accounting Principles, Revenue, Accounts receivable Pages: 11 (3231 words) Published: August 2, 2013
Asian Economic and Financial Review 2(7):741-750

Asian Economic and Financial Review

journal homepage:http://aessweb.com/journal-detail.php?id=5002

AN EXAMINATION OF THE FACTORS THAT DETERMINE PROFITABILITY OF THE NIGERIAN BEER BREWERY FIRMS

THE

Okwo Ifeoma Mary.1 Ugwunta David Okelue2 Agu Sylvia Uchenna. 3 ABSTRACT This paper examines the internal factors that determine the profitability of the beer brewery firms in Nigeria. An OLS in the form of multiple regressions were applied to annual data generated from the annual statements and accounts of the sampled beer brewery firms covering a period of 2000 to 2011. The correlation and regression results identified the ratios of inventory to cost of goods sold; account receivables to sales; and sales and general administrative expenses to sales to have statistically significant impact on gross profit margin. The paper concludes that the above identified independent variables are the internal factors that determine the profitability of beer brewery firms in Nigeria.

Key Words: Gross profit margin; beer brewery firms; sales; cost of goods sold; inventory; account receivable; sales expenses; general administrative expenses. JEL Codes: M21, M41.

INTRODUCTION
Performance evaluation is the cumulative consideration of factors that may be representative indicators or appraisal of an individual or entity’s activity, or performance in reference to some standards over a period of time. It considers the degree of goal attainment, how items are measured, and what standards are to be applied. Farlex (2010) defines Performance evaluation as the assessment of a manager’s results, which involves, first, determining whether the money manager added value by out-performing the established benchmark (performance measurement) and second,

1 2 3

Department of Accountancy, Enugu State University of Science and Technology, Enugu State, Nigeria. Department of Banking and Finance, Renaissance University Ugbawka, Enugu State, Nigeria. Department of Public Administration and Local Government,University of Nigeria, Nsukka.Enugu State, Nigeria.

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Asian Economic and Financial Review 2(7):741-750

determining how the money manager achieved the calculated return. Performance evaluation is carried out through two major measures: Financial measures and non-financial measures. Hansen and Mowen (1999) opine that financial measures focus mainly on figures which may not tell the whole story of the company. Nevertheless, financial measures are commonly used to evaluate performance. The most commonly used financial measure for performance evaluation is profitability measures. This is because most business concerns function to earn enough profit in order to remain as a going business concern. To determine firm’s profitability, one of the most frequently used tools is financial ratio analyses which include profitability ratios. Profitability ratios show firm’s overall efficiency and measure both the profit margin that the firm is able to generate as well as the return it provides on the physical facilities and fund it employs. For any firm to continue to be in business, it should be able to generate enough revenue to cover its operating cost and make enough profit as a compensation to the providers of capital. The Nigerian brewery industry has contributed much to the growth and development of Nigerian economy. Ola(2001) in Okwo and Ugwunta (2012) noted that this sector contributes about 28 percent of Manufactured Value Added (MVA) and provides direct employment for over 30,000 person and indirect employment close to 300,000 persons including the firms producing ancillary services. Because of the enormous contribution of the brewing firms in Nigeria, the constant shut down of brewing factories in Nigeria due to rising cost of inputs which invariably affect the profit margin should be of great concern to Nigerians. This research is therefore necessary to examine the determinants of...
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