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MFM RM Six

The strategic profit model helps retailers evaluate financial performance in terms of profitability and productivity. Profitability measures include return on assets, return on net worth, and net profit margin. Productivity measures include space productivity, labor productivity, merchandise productivity, and asset productivity, which indicate profit per unit of floor space, employee, inventory, and total assets. The model is demonstrated through an analysis of two retailers.

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Mayank Pitariya
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54 views

MFM RM Six

The strategic profit model helps retailers evaluate financial performance in terms of profitability and productivity. Profitability measures include return on assets, return on net worth, and net profit margin. Productivity measures include space productivity, labor productivity, merchandise productivity, and asset productivity, which indicate profit per unit of floor space, employee, inventory, and total assets. The model is demonstrated through an analysis of two retailers.

Uploaded by

Mayank Pitariya
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The Strategic profit Model

• The strategic profit model helps retailers to evaluate the financial


performance of their business.
• Two decision making areas profitability and productivity

• Profitability :States the profit that the retailer generates in terms of


assets , owners equity
• Productivity : State the profit / sales that the retailer generates for
each unit of resource input: floor space, labor, and inventory
investment
Profitability
• Return on Assets (ROA) :Is net profit divided by total
assets.

• Return on Net Worth (RONW): Is net profit divided by


owners’ equity.

• Net Profit Margin :Is the net profit divided by total sales .
Profit Path
• Net sales =Gross amount of sales- Customer returns-
Discount
• Gross Profit/margin = Net sales – cost of goods sold

• Net Profit = Gross margin – Expenses

• Net Profit Margin = Net profit / Net sales


Retailer Analysis
Particulars RA RB

Gross Sale(1) 200000000 200000000

Customer Returns(2) 100000 90000

Discount(3) 50000 75000

Net Sales=4=1-2-3 199850000 199835000

Cost of goods sold(5) 120000000 130000000

Gross Margin=6=4-5 79850000 69835000

Expenses(7) 20000000 20000000

Net Profit(Rs.) =8=6-7 59850000 49835000

Net Profit Margin=9=8/4 0.299474606 0.249380739

Assets(Rs.) (10) 10000000 9000000

Owners equity(Rs.) (11) 500000 500000


5.537222222
ROA=12=8/10 5.985

RONW (13=8/11) 119.7 99.67


Productivity
• Space Productivity :Annual net sales/ profit divided by
the total square feet of retail floor space.
• Labor Productivity: Annual net sales/ profit divided by
the number of full-time + Part time employees.
• Merchandise Productivity: Annual net sales/profit divided
by the investment in inventory.
• Asset Productivity: Annual net sales/profit divided by
total assets and shows how many rupee of sales a
retailer can generate on an annual basis with each
rupee invested in assets.
Turnover Path
• Current assets = Merchandise sold+
Merchandise in display +Merchandise in
stock + Merchandise in transit+
Merchandise with vendor+ Cash in hand
+current and savings account in bank+
marketable securities + prepaid expenses
• Total Assets = Fixed assets + current
assets
• Asset Turnover= (Net sales / Total Asset)
Store Analysis
  Store A Store B
Gross Margin (Rs.) 10000000 10000000
Space (Sq. ft.) 1000 1200
Labor( Rs.) 100000 90000
Inventory(Rs.) 50000 55000
GMROS 10000 8333.333
GMROL 100 111.1111
GMROI 200 181.8182

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