Financial Strategy

Financial – not necessarily profits, but return

on investment (ROI) – primary focus

Societal – helping to improve the world

around us

Personal – self-gratification, status, respect

6-
2
 The Strategic Profit
Model: An
Overview

Profit Margin x Asset turnover =Return on assets

Net profit
x Net sales (crossed out)=Net profit
Net sales (crossed out) Total assetsTotal assets
6-
4
 The Strategic Profit Model:
Profit Management
Sales

Gross Margin 100

-
40 Cost of
Net Profit Goods Sold

Net Profit 15 60
Margin
-

15%  Total
Sales Expenses

100 25

6-5
 The Strategic Profit Model:
Asset Management
Inventory

5
Sales
+
Asset Turnover 100 Current Accounts
Assets Receivable

10 4
Total Assets
+ +
40
Other Current Assets
Fixed Assets

2.5 30 1
 The Strategic Profit
Model: Return on
Assets
Sales
100
Gross Mar
Net Profit
40 -
15
Net Profit gin
- Cost Goods
ld So
Mar
15% ÷ 60
Sales Total Exp.
100 25
Return
)
on ( Net Profit
Net Sales

Assets Times
Inventory
37.5%
Sales 5
Net Profit 100 Fixed Assets
( )
Total Assets
sset
er
Current
30
A Turnov Total Assets
2.5 ÷ 10
Assets
( Net Sales
Total Assets +
+ +
A/R Other Cur Assets
4
1
6-
7

Net Profit Net Profit Net Sales

Total Assets = Net Salesx Total
Assets
Financial Implications of Strategies Used By
a Bakery and Jewelry Store

Net Profit X Asset=Return on

Assets Margin Turnover

La Madeline Bakery 1% X 10 times = 10%

Kalame Jewelry 10% 10% X 1 time =

6-
8
6-9
6-10
 Illustrative Productivity Measures
Used by Retailing Organizations

Level of Output Input Productivity

Organization (Output/Input)
Corporate Net profit /
Net profit Owners’ equity
(chief executive owners’ equity =
officer) return on owners’
equity

Merchandising * Gross margin /

Gross Inventory
(merchandise margin inventory* =
manager and GMROI
buyer)

Store operations Net sales /

Square foot
Net sales
(director of square foot
stores, store
manager)
1
*Inventory = Average inventory at cost 6-
1

1
Performance of retailer over time – retailer can
compare its recent performance to its
performance in the preceding months, quarters
or years.

Performance of a retailer compared to its

competitors

6-
12