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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 Benchmarking Chain Store Age’s Top 100
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 • 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 • 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 • 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 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 • Indication of how long a firms taking (on average) to pay bills, or comparison of how it’s using suppliers to finance inventory.