financial aspects in retail.ppt
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Financial Aspects inRetail
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A sound financial strategy is important for the
success of any business Same is true for retail
Only a retailer earning profit can sustain in the
business
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Costs in Retail
Cost of procurement
Cost of sales
Cost of land or the lease
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Retail Economics
The contribution of retail statistics , retail
accounting and retail financial is known as
retail economics
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Retail Ecnomics
Retail economics encompasses
Planning for new ventures
Or acquiring an existing business
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Retail Ecnomics
Feasibility Report- whether a retailer should
enter into new market or not
This report determines the economic
viability of a business
Guidelines for the new business planner
Tool for obtaining necessary financing
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Feasibility study looks at ther following areas
Market issues
Organisational issues Financial issues
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Measure of performance
Financial Performance is is an indicator of the
health of the organisation
Financial performance analysis is important
because
To help identify the gaps in the target
To identify opportunity for improvement To evaluate past tand present
performance
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The income statement
Income statement, also called profit and loss statement
(P&L) and Statement of Operations, is a company's
financial statement that indicates how the revenue
is transformed into the net income (). The purposeof the income statement is to show managers and
investors whether the company made or lost
money during the period being reported.
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The components of the income statement
Sales
Cost of goods sold Gross margin
Operating expences
and the net profit
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Sales-Total money received by sale of
merchandise
Cost of goods sold- expenses incurred for procuring
thr goods
Gross margin or gross profit on sale-Gross margin,
Gross profit margin or Gross Profit Rate can be
defined as the amount of contribution to the
business enterprise, after paying for direct-fixed
and direct-variable unit costs, required to cover
overheads (fixed commitments) and provide a
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Operating expences-An operating expense,
operating expenditure, operational expense,
operational expenditure or OPEX is an on-
going cost for running a product, business, or
system.
Cost of labour, fuiel etc
Net sales- operating expences = operating
profit
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Operating profit before tax
Is the operating profit less interest and
depreciation
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Cash Profit
Is PAT plus all non cash changes charges that
don't entail actual cash outflow but they are
only notional charges like depreciation,
writing off preliminary expenses etc.
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The Balance Sheet
In financial accounting, a balance sheet
or statement of financial position is a
summary of a person's or organization'sbalances. Assets, liabilities and
ownership equity are listed as of a
specific date, such as the end of itsfinancial year. A balance sheet is often
described as a snapshot of a company's
financial condition. Of the four basic
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A company balance sheet has three parts:
assets, liabilities and ownership equity. The
main categories of assets are usually listed
first and are followed by the liabilities. Thedifference between the assets and the
liabilities is known as equity or the net assets
or the net worth or capital of the companyand according to the accounting equation, net
worth must equal assets minus liabilities.[2]
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Measures of Performance
Evaluation
Efficiency of Store Op[eration
People Management
Consumer Management
Inventory Management
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Performance Evaluation
Three things are important
Merchandise
Store and Retail Space People
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Ratio Analysis
A tool used by individuals to conduct a
quantitative analysis of information in a
company's financial statements. Ratios are
calculated from current year numbers andare then compared to previous years, other
companies, the industry, or even the
economy to judge the performance of thecompany. Ratio analysis is predominately
used by proponents of fundamental
analysis.
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Profitability Ratios
A class of financial metrics that are used to
assess a business's ability to generate earnings
as compared to its expenses and other
relevant costs incurred during a specific
period of time. For most of these ratios,
having a higher value relative to acompetitor's ratio or the same ratio from a
previous period is indicative that the company
is doing well.
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Chief among them are
Gross margin ratio = Gross profit margin =
Gross profit/ Sales
Operating profit margin = Operating profit /
Sales
Net Profit ratio = Net profit / Sales
Return on capital employed= Net profit before
interest and tax / tota
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Liquidity ratios A class of financial metrics that
is used to determine a company's ability to
pay off its short-terms debts obligations.
Generally, the higher the value of the ratio,the larger the margin of safety that the
company possesses to cover short-term debts.
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Chief among them are
Current ratio = Current assets/ Current
liabilities
Quick ratio or acid test ratio
Financial Leverage ratio
The financial leverage ratio is also referred to asthe debt to equity ratio.
The financial leverage ratio indicates the
extent to which the business relies on debt
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Earnings coverage ratios
Earning per share
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Other measure of performance
GMROI
An inventory profitability evaluation ratio thatanalyzes a firm's ability to turn inventory into
cash above the cost of the inventory. It is
calculated by dividing the gross margin by the
average inventory cost and is used often in
the retail industry. To illustrate:
Gross Margin Return On Investment (GMROI)
= gross margin/ average inventory cost
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inventory turnover ratio
This ratio measures the number of times, on
average, the inventory is sold during the
period. Its purpose is to measure the liquidity
of the inventory
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Measuring retail store and space
performance
Gross margin return on selling space
GMROF
The concept of GMROI applied to retail
Gross margin/ Retail selling space
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Sales per square feet
The conversion ratio No of Customers who
make a purchase/ Number of customers who
enter X 100
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Measuring Employees Productivity
Gross margin return on labour = Gross
margin/ Total number of employees
Sales per employee
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The Stratigic profit model
The Strategic Profit Model (also know as the
DuPont Model) gives a visual view of an
organization's finances and provides the
ability to understand and analyze financialperformance and return on investment
(ROI).
The tool provides visibility to the inter-
relationship between the three major
categories that contribute to ROI: Margins,
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Retailing Management
Swapna Pradhan
Page -283 onwards whole chapter
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