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Financial Performance and the Strategic Profit Model

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

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  1. Financial Performance and the Strategic Profit Model Benchmarking Chain Store Age’s Top 100

  2. Percent Gross Margins

  3. Inventory Turnover

  4. GMROI

  5. 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?

  6. Strategic Profit Model Profit Margin Return on Assets  Return on Net Worth =  Asset Turnover Financial Leverage

  7. Net Income, Profit Margin

  8. 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

  9. Asset Turnover

  10. 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

  11. Return on Assets

  12. 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.

  13. Financial Leverage

  14. 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

  15. Return on Net Worth (RONW)

  16. 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.

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