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Example of a Two-Factor Gross Return per Hour Decomposed to a 4 -Factor Model GROS x Price x cph

Example of a Two-Factor Gross Return per Hour Decomposed to a 4 -Factor Model GROS x Price x cph. Ted Mitchell. The Two-Factor Model.

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Example of a Two-Factor Gross Return per Hour Decomposed to a 4 -Factor Model GROS x Price x cph

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  1. Example of a Two-Factor Gross Return per HourDecomposed to a 4-Factor ModelGROS x Price x cph Ted Mitchell

  2. The Two-Factor Model • That explains the Gross Profit being generated by the number of operating hours each week and the Biz-Café’s efficiency at converting hours of operation into Gross Profit • Gross Profit = Gross Profit per Hour x Hours • G = Gph x H • G = (G/H) x H

  3. The Four-Factor Model • Decomposes the Gross Profit Retuned per Hour, G/H, into three conversion rates • G/H = GROS x Selling Price x Cups per Hour • Gross Profit = GROS x P x cph x Hours

  4. Two-Factor Comparison of two Cafes

  5. Two-Factor Comparison of two Cafes We like to more details to explain the 14.5% change in profit

  6. Two-Factor to Four-Factor for Café A

  7. Two-Factor to Four-Factor Explanation for Café A

  8. Two-Factor to Four-Factor Explanation for Café B

  9. Comparison with Four-Factor

  10. In future Lectures • I will teach you how to measure the impact in dollars of gross profit that each change had on the total change in gross profit • Change in Gross Profit has to be equal to the sum of the dollars of impact from changes in GROS, Price, Cph, hours

  11. When we are done we would like to know the dollar impact of each change

  12. The Number of Servers has been found to be important • How would you include the number of servers, S, into the four-factor model • Gross profit = GROS x P x Cph x H • Let 1 = S/S • Gross profit = (G/R) x (R/Q)x (Q/H) x (S/S) x H • Gross profit = (G/R) x (R/Q)x (QS/HS) x H • Gross profit = (G/R) x (R/Q)x (Q/S) x (S/H) x H • G= GROS x Price per cup x (cups per server)x (Servers per hour) x hours open

  13. The Original Two-Factor model • Gross Profit = • Gross Profit per hour x Number of Hours Open • It is expanded, aggregated and decomposed into a 5-Factor Model with Revenue, Quantity Sold, and Number of Servers, made Explicit • Gross Profit = GROS x Selling Price x Cups sold per server x number of servers per hour x number of hours open

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