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Financial Analysis And Management. Financial Records. Sales Records Cash and charge sales Department sales Employee sales Merchandise Inventory Records Gross margin: Net sales minus cost of goods sold.

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financial records
Financial Records
  • Sales Records
    • Cash and charge sales
    • Department sales
    • Employee sales
  • Merchandise Inventory Records

Gross margin: Net sales minus cost of goods sold.

Gross margin position: The overall amount of gross margin achieved by the retail store.

Cost of goods sold: The difference between the cost of total merchandise handled during a period ( beginning inventory plus purchases) and the cost of ending inventory.

financial records3
Financial Records
  • Cash Outflow Records
    • Expense records Controllable expenses (direct expenses): Expenses that can be controlled by a store manager, a department manager or buyer, such as payroll or advertising. Uncontrollable expenses (indirect expenses): Expenses that continue for a time even if the store is closed or the department is eliminated.
    • Merchandising records
  • The Financial Position
income statement
Income Statement

Gross Sales $19,000,000

Sales returns

and allowances 1,000,000

Net Sales 18,000,000 100%


Inventory 15,000,000

Purchases 30,000,000

Total Merchandise

Handled 45,000,000

Less End Inventory -35,000,000

Total COGS 10,000,000 55.56%

Gross Margin 8,000,000 44.44%

Operating Expenses

Payroll 3,770,000

Rent 1,250,000

Advertising 600,000

Other 900,000

Total expenses 6,520,000 36.11%

Net Profit BT 1,500,000 8.33%

Income taxes (30%) 450,000

Net profit after taxes 1,050,000 5.83%

balance sheet
Balance Sheet

Current assets

Cash $ 300,000

Accounts receivable 1,500,000

Inventory 3,500,000

Fixed Assets

Land 200,000

Fixtures & Equip (less depr.) 1,500,000

Building (less depr.) 4,100,000

Total Assets11,800,000

Current liabilities

Accounts payable 1,500,000

Accrued payable 300,000

Notes payable 3,000,000

Long-term liabilities

Long-term debt 7,200,000

Net worth2,500,000

Total liabilities and

Net worth 11,800,000

ratio analysis
Ratio Analysis
  • Strategic Profit Model:A model which lets the retailer calculate the return on net worth and evaluate the main areas of financial management. Return on net worth: Net profit divided by net worth, which allows a comparison with alternative investments.
ratio analysis cont d
Ratio Analysis cont’d.
  • Strategic Profit Model (cont.)
    • Profit analysis
    • Asset utilization
    • Financial leverage ratio:A business’s total assets divided by its net worth. It indicates the extent to which a retailer’s assets are funded by debt.
ratio analysis cont d8
Ratio Analysis cont’d.
  • Strategic Profit Model (cont.)
    • Liquidity:A measure of the firm’s ability to meet its cash obligations as they become due. Insolvency: Exists when a firm cannot pay its bills on time. Current ratio: Current assets divided by current liabilities, which indicates the ability of the business to pay its current liabilities with its current asset. Most retailers aim for a current ratio of 2.0.
    • Quick ratio: Current assets minus inventories divided by current liabilities. This gives a better indication of the firm’s ability to cover its liabilities immediately if necessary. Most retailers try to maintain a quick ratio of at least 1.0.
    • Net working capital:Current assets minus current liabilities is a ratio which reflects the capital structure of the business.
    • Net worth position:Total debt divided by net worth which reflects the relationship between creditors and owners and the ability of a firm to finance its operations.
gross margin analysis
Gross Margin Analysis
  • Gross Margin Return on Investment:Gross margin dollars divided by average inventory at cost is a measure of how many gross margin dollars are returned for each dollar invested in inventory.
  • Gross Margin Return on Space:Gross margin dollars divided by selling space is a measure of the productivity of space.
  • Gross Margin Return on Labor:Gross margin dollars divided by employees payroll dollars is a measure of the productivity of labor which can assist management in allocating payroll dollars.
gross margin analysis10
Gross Margin Analysis

Gross margin % X net sales - gross margin $

Gross Margin $ = gross margin return on investment

Average inventory costs GMROI

Gross Margin $ = gross margin return on space

Sq. ft of selling space GMROS

Gross Margin $ = gross margin on labor

Employee Payroll $ GMROL

Measurement comparisons:

GMROI: Industry, corporation, market, store, department,

merchandise classification, SKU, vendor

GMROS: Corporation, market, store, department,

merchandise classification

GMROL: Corporation, market, store, department

strategic profit model
Strategic Profit Model




Gross Margin



Operating Profit

Net Profit




divided by

Total Expenses



Return on Assets



Net Sales

divided by

Asset Turnover


Fixed Assets

Return on

Net Worth


Total Assets





Current Assets


Other Assets

Total Assets




divided by

Net Worth
















profit margin accelerators
Profit Margin Accelerators
  • Definition:A concept which forces merchants to make their analyses and decisions with regard to their potential impact on profitability.
  • Increase in Volume
  • Increase in Price
  • Decrease in COGS
  • Decrease in Expenses
profit margin accelerators13
Profit Margin Accelerators


Unit Volume







Sales $1,000,000 $1,050,000 $1,050,000

COGS 700,000 735,000 700,000

Gross margin 300,000 315,000 350,000

Expenses 280,000 280,000 280,000

Profit 20,000 35,000 70,000

Profit increase $ X 15,000 50,000

Profit increase % X 75 % 250 %

profit margin accelerators14
Profit Margin Accelerators







Sales $1,000,000 $1,050,000

COGS 650,000 700,000

Gross margin 335,000 300,000

Expenses 280,000 266,000

Profit 55,000 34,000

Profit increase $ 35,000 14,000

Profit increase % 175 % 70 %