The impact of sales growth on manufacturing companies' profitability in the Republic of Serbia: Panel data analysis

Abstract

Background: Sales growth is one of the key factors for achieving a target high profitability rate. Sales growth provides more comprehensive use of companies' capacities, thereby allocating fixed costs to higher value of revenue resulting in higher profitability rate. Purpose: The aim of this paper is to examine the impact of sales growth on manufacturing companies' profitability in the Republic of Serbia during 2018-2021. Study design/methodology/approach: The profitability as a dependent variable was measured as return on assets, while the size of the company, current ratio, leverage, sales growth, and inventory ratio were set as independent variables. The research was based on a sample of 200 observations of large and medium size manufacturing companies and panel regression models were used. Findings: The results indicate that there is a positive and significant impact of inventory ratio and sales growth on the return on assets. The profitability of manufacturing enterprises increases with the increase in sales. The results of this paper are expected to be used by the management of manufacturing companies to be more careful to achieve stable business and development. Limitations/future research: Recommendations, limitations, and future research are given in the conclusions.