THE IMPACT OF INVENTORY MANAGEMENT ON FIRMS' FINANCIAL PERFORMANCE: CASE STUDY EGYPT Lubna ELSHEIKH 1 , Islam HASSANIN 2 1, 2 Arab Academy for Science, Technology & Maritime Transport (AASTMT)/College of International Transport & Logistics, Alexandria-Egypt Abstract: Inventory as one of the logistics activities in the supply chain, an efficient and effective inventory management helps a firm gain competitive advantage, especially in a time of accelerating globalization. The main focus in this paper is to identify the impact of inventory management on firms’ financial performance in Egypt. The population of the study included the top 50 listed companies in Egyptian Stock Exchange of the non-financial sector for whom key information from secondary data sources was available over a 7-years from 2012 until March 2019. The main aim was to investigate the implications of 2011 revolution in Egypt on the companies’ financial performance focusing on inventory management. The result reveals inventory to sales ratio has shown an insignificant coefficient on firms’ financial performance. Key Words: Return on investment (ROI), Return on Assets (ROA), Return on Equity (ROE), Inventory, Firms Financial Performance, Descriptive Statistics, Panel Data. INTRODUCTION Without comprehensive financial performance, firms cannot draw outside capital to meet their set goals in this ever changing and competitive business environment [1]. In addition, the financial performance has an effect on the growth of the company, which means that the amount of assets owned by the company can affect the productivity and efficiency of the company [2]. To sustain and enhance the company’s financial performance is not an easy task. Companies must be able to optimize all resources in hand, and in order to be competitive, the company cannot depend merely on physical assets. Perceiving the significance of the intangible assets that contribute significantly to the competitive advantage, businesses began to try to optimize and utilize it effectively and efficiently [3]. Inventory is the intermediate storage of goods which is an essential logistics activity in any supply chain [4, 5] so inventory is considered one of the intangible company assets . Effective inventory management has played an important role in the success of supply chain management [6, 7]. The optimal control of inventory is one of the greatest challenges faced by firms in a supply chain. Taken into consideration merchandise have to be manufactured before the state of demand is known and sales to consumers can take place so it is essential to hold inventory [8]. Therefore, inventories are valuable resources for firms buffering a synchronize between the different production phases within their organizational limits and with their partners. Hence, operations management research has widely researched the importance of inventory management [4, 9], and the effect of inventory costs on the financial position of a firm is remarkable, i.e. Return on investment (ROI), Return on Assets (ROA), Return on Equity (ROE). Therefore, it is not surprising that a plethora literature on this topic has accumulated over the past decades. The management of inventory and how it can provide insight into the firm’s financial performance is a topic of interest to shareholders, investors, business owners, and the general public [6]. There are many benefits to taking a model-based approach to estimating expected returns, The return on equity – typically measured as a historical average – is a key variable in the decision making of investors [10]. The return on total assets (ROA) often referred to as (ROI) the return on investment, measures the overall effectiveness of management in generating profit with its available assets. Return on Investment indicates how much profit will be yield by using the entire assets owned by the company. Good rate of return on assets (ROA) if >2%. Return on equity (ROE) is the ratio used to measure the company's success in generating profits for shareholders. Good rate of Return on Equity if (ROE) if >12%. Indicator in profitability ratio is Return on equity (ROE) and Return on investment (ROI). The reason why the ROE and ROA are selected as measure is due to the fact that ROE and ROI using net income as a benchmark in measuring profitability [11]. To empirically validate this paper, the investigation focused on the top 50 listed companies on the Egyptian Stock Exchange of the non-financial sector for whom key information from secondary data sources was available over a 7-year time-period (i.e., 2012–2019). Results reveal that a focus on resource efficiency is positively related with Stock-Returns, Tobin’s Q, and Returns-On-Assets (ROA) of firms over time. However, analysis also supports arguments favoring.