Financial Ratio Analysis as a Determinant of Profitability in Nigerian Pharmaceutical Industry

Abstract

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 2001-2011. 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 GPM while financial ratio analysis stands as ITR, DTR, CRSV and TATR for independent variables.