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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%

COGS

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

Net

Sales

-

Gross Margin

COGS

-

Operating Profit

Net Profit

Margin

Variable

Expenses

divided by

Total Expenses

+

X

Return on Assets

Fixed

Expenses

Net Sales

divided by

Asset Turnover

Inventory

Fixed Assets

Return on

Net Worth

+

Total Assets

X

+

Accounts

Receivable

Current Assets

+

Other Assets

Total Assets

minus

Financial

Leverage

divided by

Net Worth

Accounts

Payable

+

Notes

Payable

Current

Liabilities

Total

Liabilities

+

+

Other

Liabilities

Long-term

Liabilities

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

Increase

Unit Volume

5%

Increase

Prices

5%

Base

Period

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

Decrease

COGS

5%

Decrease

Expenses

5%

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 %