Class Notes (836,591)
RMG 200 (77)
Ken Wong (25)
Lecture

# Chapter 8.pdf

3 Pages
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School
Department
Retail Management
Course
RMG 200
Professor
Ken Wong
Semester
Winter

Description
Chapter 8 Net Revenue (aka net sales) = Gross revenue ‒ discounts ‒ returns Gross Profit= Net revenue ‒ cost of goods sold (COGS) (Does not include total operating expenses) COGS: Amount on an income instatement that represents the cost of purchasing raw materials and manufacturing finished products Income from Operation (IFO) = Net revenue ‒ cost of goods sold (COGS) ‒ SG&A (Does not consider income from selling property or other abnormal business operations) Net Income = Net revenue ‒ cost of goods sold (COGS) ‒ SG&A ‒ other expense +other income – tax 1. Income Statement • a.k.a. Profit and Loss statement, P&L account, operating statement, and earnings statement • Over a period of time 2. Balance Sheet - A snapshot Diluted Earnings Per Share (Diluted EPS) = Profits / (shares outstanding + warrants + stock options + convertible preferred shares) Assets = Liabilities + Owner’s Equity Gross Margin (%) = (Revenue – Cost of goods sold)/Revenue Inventory Turnover = COGS/Average Inventory Example - Cost of goods sold of a retail business during a year was \$84,270 and its inventory at the beginning and at the ending of the year was \$9,865 and \$11,650 respectively. Calculate the inventory turnover ratio of the business from the given information. Solution Average Inventory = (\$9,865 + \$11,650) ÷ 2 = \$10,757.5 Inventory Turnover = \$84,270 ÷ \$10,757.5 ≈ 7.83 3 takeaways • Understand merchandise planning, don’t buy more than what you can sell • Mark down old inventory • Don’t be out of stock of wanted, key items Asset Turnover = Net Sales/Total Assets Antique cabinet: \$50,000/\$5,000 = 10 (option 1) Plywood cabinet: \$40,000/\$500 = 80 (option 2) Ratio Analysis - The measure of the inter-relationship between different sections of the financial statements, which then is compared with the budgeted or forecasted results, prior year results - A ration is a numerator divided by a denominator - Resulting calculation could be a ratio of one of three types: percentage, multiplier, a number of days Ration Comparisons - Cross-sectional Ratio Analysis  Retailer compares their company’s ratios to another company’s or to the industry ratios  Must be calculated for the same time period (same year or quarter) - Time-series Analysis  Evaluates performance over time  Retailers would compare ratios for the most recent fiscal year or quarter with previous ratios to determine whether they are meeting financial objectives  Can identify developing trends and use the knowledge of these trends to assist in future planning - Combination of Cross-sectional Ratio and Time-series  By combining these two analyses the retailer can evaluate its performance over time as
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