Drivers of Operating Profit: A Focus on Selected Firms’ Costs

Abstract

The study evaluates how selected firms’ costs predict the directionality of operating profits of public listed consumer goods firms in Nigeria. Accordingly, the research intends to determine the effect of selling and distribution costs, cost of inventory and cost of labour on the operating profit ratio of the sampled firms. To achieve these objectives, the study adopts the ex-post facto research design. A total of 13 consumer goods firms was purposively sampled out of a population of 20 consumer goods firms that are listed on the floor of the Nigerian Exchange Group. Secondary data obtained from the 2011-2020 annual reports of the selected firms were analysed using descriptive statistics, correlation analysis and ordinary least square regression technique at 5% level of significance. Findings made showed that cost of inventory is positive, but does not significantly drive the operating profit ratio of public listed consumer firms in Nigeria, cost of labour is positive and significantly drives the operating profit ratio of public listed consumer firms in Nigeria, while selling and distribution costs are negative, but do not significantly drive the operating profit ratio of sampled firms. Based on these findings, the research concludes that when an effective costing system or technique has been established in the firm, there are efficient allocation and utilization of resources, which lead to minimization of costs and maximization of profit. It was therefore recommended that managers of consumer goods companies should strengthen envisaged control procedures to eliminate waste in their selling and distribution costs.