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The Role of Raw Material Price Fluctuations on Organizations’ Financial Performance

This research describes the impact of raw material price on the financial performance of organization. Where this research aims to determine the effect of raw material price fluctuation on manufacturing cost (manufacturing cost is the cost of raw material costs, direct labor costs and factory overhead costs) and its impact on the organization's net profit. This research used secondary data obtained from the annual reports of companies listed in the Saudi Stock Exchange for the years 2019, 2020 and 2021, and the number of these companies is 221 company divided into twenty-one sub-sectors, and this research focuses on the materials sector, which owns 43 company, where The effect of raw material prices appears on the total profit of the companies of this sub-sector because their activity is the transformational industry that relies on petroleum derivatives as raw materials. The results showed that the fluctuation of raw material prices clearly affects the cost of goods sold, which in turn affects the net profit.
The first chapter of this research is an Introduction to the impact of raw material price fluctuation on manufacturing cost, the most important scientific theories on costs, and the impact of manufacturing cost on cost of goods sold, which represents one of the two components (sales and cost of goods sold) to gross profit Which affects the net profit, which is the most important measure of the financial performance of the organization.
The second chapter of this paper is a literature review and covers the basic elements, background, parameters and models of raw material price fluctuations and their impact on net profit.
The third chapter of this paper is the methodology that describes the study participants, who were selected from organizations in the manufacturing sector and given them the role of cost managers and production managers, where a total of one hundred people were selected as participants. By answering the research questions, detailed and descriptive data collection procedures were then demonstrated using a variety of methods and tactics to extract data in one of two main ways: qualitatively, using a set of techniques to analyze qualitative data; or quantitatively, by using a variety of methods to analyze quantitative data.
The fourth chapter of this paper is the data analysis and presentation of results of findings, which confirm the link between the independent variable and the dependent variable. Regression analysis was performed using three tests, the model summary, ANOVA analysis, and coefficients analysis.
The fifth chapter of this paper is the conclusions, implications. In this research, it was concluded that raw materials are considered one of the most important aspects of the manufacturing process. This is because access to raw materials at reasonable prices and without exposure to the risk of price fluctuations makes the manufacturing process within the organization more adaptable and less difficult to implement. On the net profit of the organization, it is necessary for organizations to ensure that they have developed a strategy that helps them deal
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with situations such as price fluctuations. The research also recommended the need to invest in research and development to choose the best raw materials, which are cost effective. At the end of this chapter, the implications of this study were explained as useful in estimating the effects of raw material price fluctuations on the financial performance of the organization, and it also provided executive managers with an analytical tool to control the process of obtaining raw materials.

By
Mahmoud Mohamed Zaky Elghamry
M.B.A
From
European International University (EIU)
American International Theism University (AITU)