Financial performance and the strategic profit model
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Financial Performance and the Strategic Profit Model. Benchmarking Chain Store Age’s Top 100. Percent Gross Margins. Inventory Turnover. GMROI. Strategic Profit Model. Three major routes to success: Attention to margin: Attention to assets: Do they lead to sales?

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Financial performance and the strategic profit model

Financial Performance and the Strategic Profit Model

Benchmarking Chain Store Age’s

Top 100





Strategic profit model
Strategic Profit Model

  • Three major routes to success:

  • Attention to margin:

  • Attention to assets: Do they lead to sales?

  • Leverage: Use of equity versus debt financing?


Strategic Profit Model

Profit Margin

Return on Assets

Return on Net Worth =

Asset Turnover

Financial Leverage



Asset turnover
Asset Turnover

  • Net Sales / Total Assets

  • Comparable to Inventory Turnover

  • An indication of how closely the assets of retailer track with sales

  • Inventory should be the number one asset of a retailer

  • Real estate, fixtures, distribution centers



Return on assets
Return on Assets

  • Strategic Profit Model “Key Component”

  • Net profits / Total Assets

  • Key measure for comparisons across retailers

  • An indication of how closely the assets of retailer track with net income



Leverage total assets net worth
Leverage: Total Assets/Net Worth

  • Net worth=Assets minus Liabilities

  • Net worth=Shareholder Equity

  • Ratio illustrating the use of debt by the retailer.

  • Provides a measure of market assessment of the risk of the operation.

    • The higher the ratio of leverage, the less risk in the assets

    • The higher the proportion of apparel in inventory, the lower ratio of financial leverage.



Return on net worth
Return on Net Worth

  • Return on shareholder equity, or owners’ equity

  • Comparison that can be used across public company, as well as across retailers

  • RONW = Return on Assets x Leverage

  • RONW = Net Earnings / Shareholder Equity



Days payable
Days Payable

  • Indication of how long a firms taking (on average) to pay bills, or comparison of how it’s using suppliers to finance inventory.


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