Financial Strategies in Retail
In the following scenario, how much were net sales?Gross sales were $250,000, sales returns and allowances were $20,000 sales discounts were $9,400, cost of goods sold was $103,800, advertising expenses were $17,000, wages and salaries were $53,000, and general and administrative expenses were $29,000.
$220,600 Gross sales - (returns & allowances - discounts)
Fixed Assets
(plant and equipment) Assets owned by the company that will last longer than one year and are used in the operation of the business (buildings, vehicles, land, machinery.)
If a grocery store has an operating expense of 13,800,000, a revenue of 16,000,000, and an asset turnover of 6.2, what is their return on assets?
85.25 The return on assets is calculated by multiplying the operating profit margin (13.75%) by the asset turnover (6.2). The operating profit margin is calculated as (16,000,000 - 13,800,000) / 16,000,000 = 13.75%
Quick Ratio
= (current assets - inventory) / current liabilities
Current ratio
= current assets / current liabilities
Return on investment (ROI) AKA return on net worth (RONW)
= net profit / investment cost
The definition of "zero-based" budgeting is:
A budget process that does not assume history will be repeated
The definition of "incremental" budgeting is:
A budget process that is based on actual performance and prior plans.
"Incremental" budgeting is:
a budget process based on prior plans and actual performance.
In a zero-based budget process, a retailer must document:
a complete list of revenue and expense items for the upcoming season.
Performance metrics can be used to judge these factors EXCEPT:
an organization's board of directors.
This factor cannot be judged by performance metrics:
an organization's board of directors.
A retailer using the incremental budgeting process will keep close track of actual results because:
budgeting is an ongoing process
Inventory turnover =
cost of goods sold / average inventory at cost
Assets can be defined as:
current or fixed assets.
The following are examples of seasonal goods EXCEPT:
eyeglasses in June.
The following benefit is provided by key ratios:
financial well-being
There are two types of financial assets:
fixed or current assets.
Operating profit margin =
gross margin - (operating expenses + extraordinary (recurring) operating expenses)
Net sales =
gross sales - (returns + discounts +allowances)
The meaning of the term "value of information analysis" is:
Developing performance metrics aimed at import or high-value topics.
To calculate gross margin percent:
Divide gross margin dollars by net sales.
To calculate the turnover rate:
Divide revenue by net assets
The turnover metric is really a measure of:
how hard the inventory is working to generate sales.
The second decision the retailer must make in budget planning after sales have been estimated is:
How much inventory is necessary to support the planned sales revenue.
"Net profit" means:
How much profit there is after deducting all expenses.
Whole Foods is in the midst of budget preparation. In order to provide for the financial health of the corporation, what very difficult question needs to be answered?
How much will be needed to achieve the desired profit?
The benefit of incremental budgeting is:
it allows leadership to select the best opportunities for growth.
This can always be said of net profit:
it's less than gross profit
Net profit is always:
less than gross profit
Merchandise that is identified as slow-selling:
lowers the turnover rate.
Gross Margin =
net sales - cost of goods sold
Gross Margin =
net sales - cost of goods sold. To express as a percentage Gross margin is divided by net sales (gross margin dollars / net sales)
Asset Turnover rate.
net sales/average total assets (revenue) / net assets
When the portion of sales spent as COGS is calculated, the remaining balance covers:
operating expenses
Net profit margin =
operating profit margin - (extraordinary non-recurring expenses + interest payments + taxes + depreciation ).
What is the formula for calculating the net profit margin?
operating profit margin - (extraordinary non-recurring expenses + interest payments + taxes + depreciation ).
The next most important budget preparation decision after sales revenue and inventory levels is:
In order to achieve the firm's profit goals, what is the gross margin needed?
What are the benefits of incremental budgeting?
It challenges decision makers to go in depth when analyzing planned activity and associated expense.s
Incremental budgeting provides this benefit:
It highlights the best opportunities for growth to be selected by leadership
Profit-and-loss statements provide this major benefit:
It indicates where the focus should be in the future.
The major benefit of a profit-and-loss statement is:
It reveals where decision-makers should focus for the future.
Which of the following lists includes only fixed assets?
Machinery, land, vehicles, buildings. All of these are assets that are used in the operation of the business and will last longer than a year!
Which of the following is NOT an essential step of the ongoing budgeting process?
Monitoring the frequency of complaints that come through the human resources department.
What is the formula for ROI (return on investments)?
Net profit / investment cost
What are the four components that make up the profit management path?
Net sales, COGS, gross margin, and operating profit margin.
Moneys owed within ________ represent "current liabilities".
One year.
The remaining balance after calculating the portion of sales spent of COGS is used to cover:
Operating expenses
What are the three metrics used to measure financial performance described in this section?
Operating profit margin, asset turnover, and return on assets.
To calculate net profit margin the following would be deducted gross margin EXCEPT:
Payroll
The definition of "seasonality" is:
Peaks and valleys in sales based on event, time or calendar.
To calculate Return on Assets (ROA), the formula is:
Profit / Assets
This formula can also be used to calculate ROA:
ROA = Asset turnover x Operating profit margin
Return on assets (ROA) is calculated by using he following formula:
ROA = net profit / total assets
Return on assets (ROA)
ROA = net profit / total assets OR Operating profit margin x Asset turnover
ROA can also be calculated using this formula:
ROA = operating profit margin X asset turnover
"2% net 10" is a term that refers to"
Retailer payments terms to suppliers
In this section we described three metrics used to measure financial performance. They are:
Return on assets, asset turnover, and operating profit margin.
When creating a budget, the first value the retailer will decide is:
Sales revenue
How does seasonality affect cash flow?
Seasonal goods need to be purchased prior to the selling season tying up cash in inventory that will sell later.
Cash flow is impacted by seasonality because:
Seasonal goods tie up cash in inventory that will sell later by being purchased prior to the selling season.
For a shaved ice food truck that serves cold, refreshing treats, in what season might their cash flow be greatest?
Summer
Criticism of performance metrics is based on the fact that:
The information they focus on isn't high-value.
"Beginning inventory" refers to:
The physical product on-hand at the start of the accounting period.
Documentation for a zero-based budget process would include:
The upcoming season's complete list of revenue and expense items.
Gross Sales =
total sales before returns, discounts, allowances
If you were the manager, what decision would you make in the following scenario?It's seasonal planning time at Trendy Tots. Your divisional manager has forwarded you some historical data for your department for the last two years, along with guidelines for your plan for the upcoming season. She expects a 10% increase in sales over the previous year, and a one percentage point increase in gross margin percent. Spring 2020 Plan Sales 200,000 (2018) 215,000 (2019) COGS 103,000 (2018) 115,000 (2019) Gross Margin 97,000 (2018) 100,000 (2019) GM % 48.5% (2018) 46.5% (2019) How much would COGS be in 2020 to achieve these goals?
. COGS would be $124,162.50 First, let's calculate the increase in sales. 2019 sales were $215,000. A 10% increase (.10 x 215,000 would be $21,500 = $236,500. ) 2019 Gross Margin % was 46.5% a 1 percentage point increase would be 47.5% gross margin. 47.5% of 236,000 is $112,337.50. Gross Margin = Sales - COGS. To calculate COGS when sales and gross margin is known, we subtract Gross Margin from Sales. 236,500 - 112,337.50 = $124,162.5
Calculate the portion of sales spent on COGS:
1 minus gross margin percent.
Using the ZYX Retailers Balance Sheet with the following information:If net sales for the year is $1,000,000, what is the Asset Turnover rate?
1.9 Net sales divided by total assets
For a company with a net profit of $25,000 and $225,000 in total assets, what is the return on assets?
11.1%
The greatest revenue would be generated by this asset turnover metric:
2.5
The ROA for a retailer with asset turnover of 3.0 and profit margin of 10% would be:
30%
In the following scenario, what is the gross margin percent?Gross sales were $250,000, sales returns and allowances were $20,000 sales discounts were $9400, cost of goods sold was $103,800, advertising expenses were $17,000, wages and salaries were $53,000, and general and administrative expenses were $29,000.
52.9%
Incremental budgeting is used by more retailers than zero-based budgeting because:
Adjustments to future plans are made on a more timely and realistic basis because incremental budgeting documents results closely.
Cost of goods sold (COGS) is calculated by:
Beginning inventory + Purchases - Ending Inventory
How do we calculate cost of goods sold (COGS)?
Beginning inventory + Purchases - Ending Inventory.
Actual results are documented by retailers using the incremental budgeting process because:
Budgeting is an ongoing process
The profit management path is composed of these four components:
COGS, operating profit margin, net sales, and gross margin.
To calculate "current ratio", a measure that reflects the firm's ability to pay obligations, the formula is:
Current ratio = current assets/ current liabilities.
The phrase "2% net 10" refers to:
retailer payment terms to suppliers.
The first value in a retailer budget decision is:
sales revenue
To calculate gross margin dollars, we take net sales and:
subtract COGS.
To calculate the net worth of a company:
subtract liabilities from assets.
The net worth of a company is calculated by:
subtracting liabilities from assets.
After sales revenue has been decided, the next decision a retailer must make about the budget is:
the amount of inventory needed to support the planned sales revenue.
A -4.5% gross margin percentage would indicate.
the firm is taking a loss.
A gross margin percentage of -4.5% would indicate:
the firm is taking a loss.
