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Financial Performance of
Mercury Drug Franchise Stores
in Luzon, Philippines
Jason M. Metra
Master in Management major in Financial Management
Chapter I. Background of the Study
Managing inventory effectively and efficiently is of paramount importance to any
pharmacy like Mercury Drug.
Hence, sustainable operation of Mercury Drug franchise stores depends largely on how
well they manage their inventory.
It has been observed, however, that most franchise stores have become habituated
with high levels of stock availability resulting in higher stock holding levels.
Mercury Drug is one of the most trusted pharmacy chain in Asia (International Brand
Consulting Corporation, 2018).
Mercury Drug is more than just a pharmacy - it is the country's trusted and caring
health and wellness partner, providing the widest range of branded and generic
medicines, as well as a complete line of health care and personal care products,
including medical devices, and basic everyday needs.
Mercury Drug franchise stores are considered pioneers in drug retailing in North and
Central Luzon.
Background of the Study (con’t…)
In the retail industry where Mercury Drug franchise stores belong, medicines, milk,
cosmetics and other non-pharmaceutical products are the core of its business thus any
shortages or overages of its inventory can be extremely unfavorable to the company.
The goal of this research is to measure the inventory management performance of
Mercury Drug franchise stores in order to find possibilities for improvement.
Therefore, it is important that we examine in this study the effects of inventory
management on financial performance and identify the problems and concerns that
Mercury Drug franchise stores are experiencing.
Statement of the Problem
Inventory constitutes a major component of working capital of each franchise store.
Thus, this study will attempt to determine the relationship between inventory
management performance and financial performance of Mercury Drug franchise stores
in North and Central Luzon.
Specifically, the study shall provide answers to the following questions:
What is the profile of Mercury Drug franchise stores in terms of:
a. Company Size;
b. Length of Operation; and
c. Number of Employees?
What is the level of performance of Mercury Drug franchise stores based on the
following measures:
a. Inventory Turnover; and
b. Shrinkage?
Statement of the Problem (con't...)
Vigan City
Cauayan City
Urdaneta City
Mercury Drug Franchise
Paniqui, Tarlac Stores in Central Luzon
Olongapo City
Population and Sampling
The population of this study consists of Mercury Drug franchise stores in North and
Central Luzon.
The sampling technique that will be used for this study are purposive and
convenience sampling.
The target number of respondents would be at 50% to 75% of the total number
of franchise stores.
Data Gathering Instrument & Procedure
The study depends on both primary and secondary data.
Questionnaires and informal interviews are to be used as the research primary
data.
Secondary data will come from Audited Financial Statements (AFS) of Mercury
Drug franchise stores submitted to the Securities and Exchange Commission (SEC)
for the three (3) year period from 2015 to 2017.
The survey questionnaire will be distributed personally to the managers of the
identified Mercury Drug franchise stores.
The data will be collected for a period of two (2) weeks.
All data pertaining to financial performance will greatly rely on the submitted
Audited Financial Statement (AFS) to the Securities and Exchange Commission
(SEC).
Ethical Considerations
The researcher will ask permission from the management of each respective
franchise stores.
The respondents of this study are not forced to answer any or all of the items but
will do it voluntarily.
Information provided by the representatives of Mercury Drug franchise stores are
assured of utmost confidentiality and will not be used for any other purpose
except for the attainment of the objectives of this research study.
The researcher shall exercise a great deal of care and fairness throughout the
research process.
Statistical Treatment of Data
Inventory management performance will be measured using inventory turnover
and shrinkage while financial performance will be measured using return on
assets, return on sales, and return on equity.
These metrics will be computed using the audited financial statements. Since this
study will make use of panel data, regression analysis will be applied.
To obtain unbiased and consistent estimates, several diagnostic tests will be
carried out on the data series.
Pre-regression Test
Regression Test
Interpretation of Data
1.To interpret the inventory management performance of Mercury Drug franchise
stores, the computed values will be interpreted using the following ranges:
a. Inventory Turnover
Range Level of Performance
12 and above Very Good
6 – 11.99 Good
5.99 and below Poor
b. Shrinkage
Range Level of Performance
0.20% and below Very Good
0.21% to 0.30% Good
0.31% and above Poor
Interpretation of Data
2.To determine the level of financial performance (ROA, ROS and ROE) of Mercury
Drug Franchise stores, the values are interpreted as follows:
Range Level of Performance
100% and above Very Good
0.99% and below Poor
Questionnaire
Par t I. Business Pr ofile of Mer cur y Dr ug Fr anchise Stor es
Instr uct ion: Please respond to the following questions by placing a check mark (√) in
the answer box that corresponds to your response and/or fill in the blank where
indicated.
Name: (Optional)
______________________________________________________
Par t II. Per for mance of Mer cur y Dr ug fr anchise stor es in ter ms of Inventor y
Management Metr ics:
Instr uct ion: The data will depend on the submitted Audited Financial Statement
(AFS) te Securities and Exchange Commission (SEC). In this regard, kindly furish a
copy of the AFS as basis oin the computation of the inventory management and
financial performance of the company.
Shrinkage
Questionnaire (con't...)
Part III. Financial Performance of Mercury Drug franchise stores in terms of:
Return on Sales
Questionnaire (con't...)
P a r t IV. P r ob lems a n d C on cer n s of M er cu r y Dr u g fr a n ch ise stor es r ela te d to
In ven tor y M a n a gemen t
In str u ct ion : Please place a check mark (√) in the box/es that you think your store
is/are currently experiencing.
Failure to track demand because temporary out-of stock lis t is not consid ered
before ord ering.
Having an excess inventory due to guestimates and /or inaccurate ord ers.
Sometimes stocks are not properly labelled and displayed on their respective
gondolas.
Merchand ise inventory level is more than four (4) weeks supply.