RMG 200 Lecture Notes - Lecture 8: Credit Union, Profit Maximization, Nonprofit Organization
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3 Types of objectives (for being a retailer)
1. Financial: Profit maximization
2. Societal: Non-profit organization? E.g., Credit Union (non-profit in USA, for-profit in
- members who have accounts in the credit union are the owners of the credit union
- Serve members, not profit maximization"
3. Personal: E.g., Cup cake shop, hair dresser...etc." Working is an enjoyment
- the analysis of a retailers financial statement.
- Using financial data from the balance sheet and/or the income statement to
understand profitability over a period of time
1. Cross-section ratio analysis
- comparing a retailer’s ratio to another company’s during the same period.
Eg. Mcdonalds vs. burger king (Q4 2014)
2. Time-series ratio analysis
- compares a retialers ratios for the most recent year or quarter to see if they are
meeting financial goals
Eg. Q4 2012 vs Q4 2013 vs Q4 2014
Net Revenue (aka net sales): gross revenue – discounts – returns
Gross Profit (gross margin): Net revenue – cost of goods sold (COGS)
- does not include total operating expenses (eg. Staff salary, rent)
Income from Operations (IFO): Net revenue – cost of goods sold – selling, general and
- does not consider income from selling property or other abnormal business
Net Income= net revenue – cost of goods sold – SG&A – other expense + other income –
2 Important Financial Tables:
1. Income statement
- aka. Profit and loss statement, P&L account, operating statement, and earning
- over a period of time
2. Balance sheet
- a snapshot
A= L + O.E
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