CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF THE STUDY

According to Lucey T. (2009), stocks or inventory is one of the largest and most valuable current assets of any trading or manufacturing concern. They are items of value held for use or sale by an enterprise and include goods awaiting sale, sometimes called finished good stocks; goods in the course of production, also called work in progress or process and goods to be consumed in the course of production, called raw material stocks. Conversely, it excludes long term assets subject to depreciation, called fixed assets and those subject to amortization, called intangible or fictitious assets (Adedeji & Kajola, 1998).

Nonetheless, inventory of manufacturing concerns constitutes the second largest item after fixed assets in the balance sheet in terms of monetary value; hence it is paramount to attach importance to the control of the stock and its usage by the management (Igben, 2009).

Valuation is a measurement process; hence by stock valuation we refer to the assignment of monetary value to stock Lucey T. (2009). The value attached to stock at the end of every financial year would go a long way to determine the level of profitability for that particular year.

In view of the above, this study is out to make critical review and analytical demonstration of stock as it affects companies and in pursuance of this objective a general analysis of method of stock valuation and their associated problems would be considered.

1.2            STATEMENT OF THE PROBLEM

Most companies, especially manufacturing companies, now operate at lower capacity; hence they find it extremely difficult to control inventory. Quite often management is faced with inventory problems such as inadequate raw materials; obsolute materials; high storage cost etc. Each individual within a management group will answer the questions from his own point of view, what he thinks about inventory in isolation from other operation forgetting that inventory is not an end in itself but only a means to an end.

From the above, it is apparent to management of manufacturing companies that efficient management of inventory is an important move in ascertaining profitability in the chain of business operations requiring exercise of considerable commercial and managerial skills and judgements.

1.3            OBJECTIVES OF THE STUDY

The following are the objectives of this study.

i)                   To find out whether there is need for management inventory level.

ii)                To determine the cost of transportation, storage and delivery changes include the purchase price to be used in stock valuation.

iii)              To examine whether there is inadequacies in the control system in Idems Ultimate Limited, Uyo.

iv)              To find out whether high stock cost reduce profit in Idems Ultimate Limited, Uyo.

v)                To determine whether changing prices for bought in stock affect stock valuation method adopted by Idems Ultimate Limited, Uyo.

vi)              To determine whether proper checking of goods purchased order done in terms of quantity, price and description.

1.4            RESEARCH QUESTIONS 

The study was guided by the following research questions:

i)                   Is there need for management inventory level?

ii)                Does cost of transportation, storage and delivery charges include the purchase price to be used in stock valuation?

iii)              Does rapidly changing prices for bought in stock affects stock valuation method adopted?

iv)              Does high stock cost reduce profit?

v)                Is proper checking of good purchases order done in terms of quantity, price and description?

vi)              Are there inadequacies in the stock control system?

1.5            RESEARCH HYPOTHESES

For the purpose of analyzing the data, the following hypotheses were tested:

Hypothesis 1

Ho:    Proper checking of good purchased ensure conformity with purchase order in terms of quality, quantity, price and description.

 Hypothesis 2

Ho:    High stock cost will bring about a reduction in the profit of manufacturing companies.

1.6     SCOPE OF THE STUDY

This study is limited to Idems Ultimate Limited, Uyo, and upon the research topic, which is centered on the impact of inventory valuation on profit measurement of the company.

1.7     SIGNIFICANCE OF THE STUDY

          The ultimate goal of any company or organization is to maximize profit. The goal can be achieve in the manufacturing firm (company) like Idems Ultimate Limited, Uyo through inventory valuation on profit measurement of the company.

          The study is necessary because it would enable the employer and employee of Idems Ultimate Limited, Uyo to improve ethical behaviour and code of conduct in the management of the company.

          It would be of immense benefit to investors who want to invest in the company and the shareholders of the company to earn more profit.

It will also serve as a reference source to researcher (students) who might want to further studies in the similar topic.

1.8     LIMITATION OF THE STUDY

          The limitation of this study was inability of management divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation.

          Also, the outright inability of some respondents to complete and return the questionnaire to the researcher is one of the limitations of the study.

          Another limitation to the study was traffic congestion for the researcher to meet them in their offices and for possible return of the questionnaire.

          Finally, the researcher observed the non-cooperative attitude of some workers of the company to make information available for her.

1.9     DEFINITION OF TERMS

          For the purpose of this work, definitions of some variable terms are defined as follows:

Ø    INVENTORY: This is defined as the stock of the product a company is manufacturing for sale and the components that make up the products (Adibe, 1995 and Aguolu, 1997).

Ø    PROFITABILITY: This is defined as the tendency to make profits (Koholer, 1995). It means in general terms for the excess of revenue, proceeds or selling price owners, related cost, and pecuniary benefit arising from profession, or from one or more individual’s transactions of any person.

Ø    INVENTORY TURNOVER: The inventory turnover ratio is a common measure of the firm’s operational efficiency in the management of its assets.

Ø    INVENTORY MANAGEMENT: This refers to all the activities involved in development and managing the inventory levels of raw materials, semi-finished materials (work-in-progress) and finished goods so that adequate supplies are available and the cost of over or under stocks are also low (Chiktriki and Revnidannalt, 2010).

Ø    MANAGEMENT: This is defined as a process (both social and technical that utilizes resources and changes human behaviour in the desired direction in order to produce contributions accomplishing the organization objectives (Igbodi, 1990).

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