RETAILING FINANCIAL LECTURE - RETAILING FINANCIAL LECTURE...

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6/15/16, 11 : 00 AM RETAILING FINANCIAL LECTURE Page 1 of 4 RETAILING FINANCIAL LECTURE As with all business decisions, strategic financial decisions in retailing come down to a simple idea: costs vs. benefits. If we are attempting to decide where we can get “more bang for the buck” it doesn’t matter what financial model or terminology we use, it goes back to this basic idea. In a nutshell, we will look at two main areas. The first is the profits (financial) side; the other is the asset management (asset turnover) side. We will then put these two sides together to get a true understanding of the effectiveness of the organizational strategy. We will put the profit and asset sides together by using something called the Strategic Profit Model (SPM). I will also point out some ratios that retailers use along the way. I know that many of you have dealt with something called Return on Investment (ROI) and I want to make sure that you understand that this SPM is simply a model used to measure ROI. I also want to make sure you understand that Return on Assets (ROA) is a ROI number. We will look at ROA and I don’t want you to get confused as to what it is – it is a number to look at ROI, so think of them as the same thing for our purposes. As I previously stated, we will combine profit measurements and asset measurements to get to our final number. These profit numbers come from income statements (in retailing, we call our income statement our P&L which stands for profit and loss) and we will get the asset numbers from the balance sheet. Our overall goal is to see how much profit is generated by our assets. We can also use this model to estimate how much profit might be generated by different investment options. This all being said, we will look at the profit side first, then the asset side before proceeding to combine them.
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