financial aspects in retail.ppt

7/29/2019 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

financial aspects in retail.ppt

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