Week 7: Finances and Presenting Information

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Week 7 Finances and Presenting Information
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Financial Strategy (Levy/Weitz)

• Two paths to make money
• Profits (gross margin)
• Turnover (speed of inventory utilization)
• These two paths are combined into a measure
  called Return on Assets

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Financial Strategy

• Strategic profit model
• Net profit margin
• asset turnover (incl. inventory)
• return on assets
• NPM x AT ROI
• 1 x 10 10 Bakery
• 10 x 1 10 Jewelry

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Key Terms Income
Measures merchandising results

• Net sales
• Gross margin (or profit) dollars
• Gross margin percent (of net sales)
• Expenses selling, general and administrative
• Net profits, before and after taxes

Measures overall organization
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Key Terms Assets

• Current assets can be converted to cash within a
  year
• accts receivable
• merchandise inventory
• cash, etc.
• Inventory turnover how many sales dollars
  generated by 1 of inventory
• Fixed assets buildings, equipment, etc.

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Key Terms Liabilities

• Accounts payable primarily to suppliers of
  inventory
• source of short-term financing (Wal-mart example)
• Long-term liabilities
• typically leases on buildings
• Owners Equity

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In-Class Exercise

• Nordstrom and Dollar General

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HBR Note on Retail Economics

• Comp-store sales growth (comps comp. Stores)
• Sales per square foot
• Direct product profit
• GMROI (or GMROII) .

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Category-Level Financial Measures GMROII

• How many gross margin earned for every of
  inventory invested
• GM / Net sales x Net sales / Average inventory
  (usually at cost)
• GM/ Average inventory
• Wine vs. dairy categories

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Visual Display of Quantitative Information 9
Keys

• Show the data
• Think about the substance
• Avoid distortion
• Present many numbers in a small space
• Make large data sets coherent

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Visual Display of Quantitative Information 9
Keys

• Encourage eye to compare
• Reveal several levels of detaila
• Serve a clear purpose
• Closely integrate with other descriptions

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Other Displays

• Maps
• Snows cholera map

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Graphical Integrity

• Disappearing baseline charts
• Varying time periods
• Size/volume deception
• Design variation
• Deflated and non-deflated currency
• Context showing more history

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Use/Misuse of Statistics

• Understand what is an assumption vs. what is
  known data
• Be clear about what you want to discover (e.g.
  mean score)
• Dont assume cause and effect
• Understand if sample is random
• Dont manage to insignificant statistical results