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