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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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Profit Margin Management
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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Profit Margin Management
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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Profit Margin Management
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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Profit Margin Management
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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Profit Margin Management
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
YOU25