Financial Aspects in Retail

A sound financial strategy is important for the success of any business Same is true for retail Only a retailer earning profit can sustain in the business

Costs in Retail
Cost of procurement Cost of sales Cost of land or the lease

Retail Economics
The contribution of retail statistics , retail accounting and retail financial is known as retail economics

Retail Ecnomics
Retail economics encompasses Planning for new ventures Or acquiring an existing business

Retail Ecnomics
Feasibility Report- whether a retailer should enter into new market or not This report determines the economic viability of a business Guidelines for the new business planner Tool for obtaining necessary financing

Feasibility study looks at ther following areas Market issues Organisational issues Financial issues

Measure of performance
Financial Performance is is an indicator of the health of the organisation Financial performance analysis is important because To help identify the gaps in the target To identify opportunity for improvement

To evaluate past tand present performance

The income statement

Income statement, also called profit and loss statement (P&L) and Statement of Operations, is a company's

financial statement that indicates how the revenue is transformed into the net income (). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.

The components of the income statement Sales Cost of goods sold Gross margin Operating expences and the net profit

 Sales-Total money received by sale of merchandise Cost of goods sold- expenses incurred for procuring thr goods Gross margin or gross profit on sale-Gross margin, Gross profit margin or Gross Profit Rate can be defined as the amount of contribution to the business enterprise, after paying for direct-fixed and direct-variable unit costs, required to cover overheads (fixed commitments) and provide a

 Operating expences-An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an ongoing cost for running a product, business, or system. Cost of labour, fuiel etc Net sales- operating expences = operating profit

 Operating profit before tax Is the operating profit less interest and depreciation

 Cash Profit Is PAT plus all non cash changes charges that don't entail actual cash outflow but they are only notional charges like depreciation, writing off preliminary expenses etc.

The Balance Sheet

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition. Of the four basic

 A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[2]

Measures of Performance Evaluation

People Management Inventory Management

Efficiency of Store Op[eration

Consumer Management

Performance Evaluation
Three things are important Merchandise Store and Retail Space People

Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

 Profitability Ratios A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

 Chief among them are Gross margin ratio = Gross profit margin = Gross profit/ Sales Operating profit margin = Operating profit / Sales Net Profit ratio = Net profit / Sales Return on capital employed= Net profit before interest and tax / tota

 Liquidity ratios A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

 Chief among them are Current ratio = Current assets/ Current liabilities Quick ratio or acid test ratio Financial Leverage ratio The financial leverage ratio is also referred to as the debt to equity ratio. The financial leverage ratio indicates the extent to which the business relies on debt

 Earnings coverage ratios Earning per share

 Other measure of performance GMROI An inventory profitability evaluation ratio that analyzes a firm's ability to turn inventory into cash above the cost of the inventory. It is calculated by dividing the gross margin by the average inventory cost and is used often in the retail industry. To illustrate: Gross Margin Return On Investment (GMROI) = gross margin/ average inventory cost

 inventory turnover ratio This ratio measures the number of times, on average, the inventory is sold during the period. Its purpose is to measure the liquidity of the inventory

Measuring retail store and space performance

Gross margin return on selling space GMROF The concept of GMROI applied to retail Gross margin/ Retail selling space

 Sales per square feet The conversion ratio No of Customers who make a purchase/ Number of customers who enter X 100

Measuring Employees Productivity

Gross margin return on labour = Gross margin/ Total number of employees Sales per employee

The Stratigic profit model

The Strategic Profit Model (also know as the DuPont Model) gives a visual view of an organization's finances and provides the ability to understand and analyze financial performance and return on investment (ROI). The tool provides visibility to the interrelationship between the three major categories that contribute to ROI: Margins,

 Retailing Management Swapna Pradhan Page -283 onwards whole chapter