Management should be well aware of the effect of high inventory level and tend to decrease inventory to the levels necessary for sales rather than building up inventory to manage net income. Hence, the greater degree to which companies embraced JIT philosophy into their operations in each period, the smaller net income differentials will be. Therefore, it is important to examine relative impact of the two factors on profitability differentials over time. To do this, data of nine
years were pooled and analyzed by the following multiple regression analysis model: