financial strategy of retail store

8/12/2019 financial strategy of retail store

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FINANCIAL STRATEGY OFRETAIL STORE

Presented By;Srikanta biswal

Adyasa Das

Sonam Subhadarsini

Sikta Panigrahi

Sudhansu Sekhar Jena

Sanjaya Behera1


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Retailing StrategyRetail Market Strategy

Financial Strategy

Retail Locations

Retail Site Location

Human Resource Management

Information Systems and Supply Chain Management

Customer Relationship Management


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Objectives and GoalsO Financialnot necessarily profits, but

return on investment (ROI)primary

focus

O Societalhelping to improve the world

around us

O Personalself-gratification, status,

respect


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Components of the

Strategic Profit Model


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The Strategic Profit Model:

An Overview

Profit Margin x Asset turnover = Return on assets

Net profit x Net sales (crossed out) = Net profitNet sales (crossed out) Total assets Total assets

Net Profit Margin: reflects the profits generated from each dollar of

sales

Asset Turnover: assesses the productivity of a firms investment in

its assets


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Profit Margin Management

PathO Net Sales = Gross Sales + Promotional

Allowances - Return

O Cost of Good Sold (COGs)O Gross Margin (GM) = Net Sales - COGs


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PathO Operating Expense

O Variable (e.g.. sales commissions)

O Fixed (rent, depreciation, staff salaries)O Selling, general, and administrative

(SG&A) expenses


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PathO Operating profit margin

O Operating profit margin = Gross margin -

Operating expenses - Extraordinary(recurring) operating expenses

O Net profit margin = Operating profit margin

- Taxes - Interest - Extraordinary

nonrecurring expenses


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PathO Gross margin percentage is gross margin

divided by net sales.

O Retailers use to compareO the performance of various types of

merchandise

O their own performance with that of other

retailers with higher or lower levels of

sales.Gross margin

Net sales= Gross margin %


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PathO SG & A or operating expenses can be

expressed as a percentage of net sales to

facilitate comparisons across items,stores, and merchandise categories within

and between firms.

Operating expenses

Net sales= Operating expenses %


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PathO Net operating profit percentage is gross

margin minus operating expenses divided

by net salesGross margin - Operating expenses

Net sales= Net operating profit %


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Asset Management PathO Assets:

O Economic Resources (e.g., inventory,

buildings, computers, store fixtures) ownedor controlled by a firm

O Current Asset and Fixed Asset

O Current Assets = Cash + Account

Receivable + Inventory + Other current

assets


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Asset Management PathO Accounts receivable are primarily the

monies owed to the retailer by customers

that have bought merchandise on credit.O Fixed Assets = Fixture, Stores (owned)

O Asset Turnover = Sales/Total Assets

O Inventory Turnover = COGS/Avg.Inventory (cost)

Net sales

Total assets= Asset turnover

Cost of goods sold

Average inventory at cost= Inventory turnover


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Inventory TurnoverO A Measure of the Productivity of Inventory:

O It is used to evaluate how effectively

retailers utilize their investment in inventoryO Shows how many times, on average,

inventory cycles through the store during

a specific period of time (usually a year)

Inventory Turnover = COGS/avg inventory (cost)

Inventory Turnover = Sales/ avg inventory (retail)


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Analysis of Financial StrengthO Cash-Flow Analysis

O Retailers need cash to meet their

obligations i.e., salary, rent, vendors,etc.

O Cash flow is calculated by making

adjustments to net profit involving adding

or subtracting differences in revenue and

expenses that occur from one period to thenext.


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Analysis of Financial StrengthO Debt-Equity Ratio

O The retailers short- and long-term debt

divided by the value of the owners orstockholders equity.

O Current Ratio

O The is short-term assets divided by short-

term liabilities, it evaluates the retailers

ability to pay its short-term debt

obligations.


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Analysis of Financial StrengthO Quick Ratio

O acid-test ratio

O More stringent test because it removesinventory from the short-term assets.

O If a retailer needs cash to pay its short-

term liabilities, it cannot rely on inventory to

provide an immediate source for cash.


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Setting and

Measuring PerformanceObjectivesO Retailers will be better able to gauge

performance if it has specific objectives in

mind to compare performance.

O Should include:

O numerical index of performance desired

O time frame for performanceO necessary resources to achieve objectives


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Setting Objectives

in Large Retail OrganizationsTop-Down Planning

Corporate Developmental Strategy

Category, Departments

and sales associates

implement strategy


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Setting Objectives

in Large Retail Organizations

Bottom-Up Planning

Buyers and Storemanagers estimate

what they can

achieve

Corporate

Operation managersmust be involved in

objective setting

process


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Productivity MeasuresInput Measuresassess the amount of resources or

money used by the retailer to achieve outputs such as

sales

Output measuresasses the results of a retailers

investment decisions

Productivity measuredetermines how effectivelyretailers use their resourcewhat return (e.g., profits)

they get on their investments (e.g., expenses)


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Financial Performance of

RetailersOutputs Performance

O Sales

O Profits

O Cash flow

O Growth in sales, profits

O Same store salesgrowth

Inputs Used by Retailers

O Inventory ($)

O Real Estate (sq. ft.)O Employees (#)

O Overhead (CorporateStaff and Expenses)

O AdvertisingO Energy Costs

O MIS expenses


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Examples of Performance

Measures Used by Retailers


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Assessing PerformanceO Growth in Stockholder ValueStock Price

O Accounting MeasuresROA (Riskadjusted)

O Benchmark

O Performance Over Time

O Compare performance indicator for three

yearsO Performance Compared to Competitors

O Compare performance indicators with majorcompetitors for one year, most recent


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THANK

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financial strategy of retail store

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