COST REDUCTION AND PROFITABILITY OF MANUFACTURING COMPANIES IN NIGERIA

ABSTRACT

This study examines the impact of cost reduction on the profitability of consumer goods manufacturing companies in Nigeria. Profitability, measured by Return on Assets (ROA), is essential for assessing financial performance, while cost reduction is a key strategy for improving efficiency and sustaining competitive advantage. The study focuses on four key cost components: Cost of Goods Sold (COGS), finance costs, salaries and wages, and cost of assets. Using an ex-post facto research design, secondary data were obtained from the annual reports of 12 selected consumer goods manufacturing firms listed on the Nigerian Exchange Group (NGX) between 2019 and 2023. The analysis was conducted using panel regression techniques to determine the relationship between cost reduction and profitability. The findings reveal that finance costs and salaries and wages have a significant negative impact on profitability, suggesting that high borrowing costs and excessive labour expenses reduce firm performance. In contrast, COGS and cost of assets do not have a significant effect on profitability, indicating that firms may have implemented effective cost-control measures in production and asset management. The study recommends that firms minimize excessive borrowing, restructure debt, and explore alternative financing options to reduce finance costs. Additionally, adopting performance-based remuneration models and automation strategies can enhance  workforce productivity while maintaining cost efficiency. Companies should also focus on optimizing asset utilization to maximize returns on investments. Policymakers are encouraged to create favourable financial policies that support cost efficiency and sustainable profitability in Nigeria’s manufacturing sector.