Exploring The Effects Of Inventory Conversion Duration On Profitability: A Study Of Firms Listed In The BSE DOLLEX 200

Abstract

This paper examines the relationship between Inventory Conversion Period (ICP) and profitability metrics across a sample of 100 companies from the BSE DOLLEX 200 index in India, representing a broad spectrum of industries. By calculating each company's ICP and correlating these figures with key profitability indicators, including Return on Equity (RoE), Return on Assets (RoA), Net Profit Margin (NPM), Earnings Per Share (EPS), and Market Capitalization (M. Cap), the study aims to discern the impact of inventory management efficiency on financial performance. The analysis employs Pearson correlation coefficients and regression models to evaluate these relationships. Our results indicate a significant negative correlation between ICP and Net Profit Margin, as well as between ICP and Market Capitalization, suggesting that longer periods to convert inventory into sales adversely affect a company's profitability and market valuation. Conversely, the correlations between ICP and other profitability measures, such as RoE, RoCE, RoA, and EPS, are found to be insignificant. These findings underscore the critical role of efficient inventory management in enhancing a company's financial health and market position. This study contributes to the existing literature by providing empirical evidence on the importance of optimizing inventory conversion processes within the diverse economic landscape of India, offering valuable insights for managers and investors alike.