1243013618_Chap006(2) - Return on Assets Net Profit Margin...

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6-1 Return on Assets Net Profit Margin x Asset Turnover = Return on Assets Macy’s: 3.70% x 0.95 = 3.37% Costco: 1.80% x 3.44 = 6.19% Return on Assets is a very important performance measure because it shows how much money the retailer is making on its investment
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6-2 Evaluation of Financial Path: Macy’s and Costco Macy’s Costco Higher net profit margin Higher asset turnover Retailers (and investors) need to consider both net profit margin and asset turnover when evaluating their financial performance the implications of strategic decisions on both components of the strategic fit model EX: Increasing prices => gross margin, net profit margin sales, asset turnover
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6-3 Strategic Profit Model Ratios for Selected Retailers
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6-4 Income Statement for Gifts to Go
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6-5 Profit Margin Management Path: Gross Margin Percent Gross Margin = Gross Margin Percent Net Sales Stores: $350,000 = 50% $700,000 Gifts-to- Go.com $220,000 = 50% $440,000
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6-6 Operating Expense Percent Operating Expenses = Operating Expenses % Net Sales Stores: $250,000 = 35.7% $700,000 GiftstoGo.com $150,000 = 34.1% $440,000
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6-7 Net Profit Percentage Net Profit = Net Profit Percentage Net Sales Stores: $ 59,800 = 8.5% $700,000 Gifts-to- Go.com: $ 45,500 = 10.3% $440,000
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6-8 Balance Sheet Information for Gifts to Go and Proposed Internet Channel
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6-9 Asset Turnover Management Path: Inventory Turnover Cost of Goods = Inventory Turnover Average Inventory Stores: $350,000 = 2.0 $175,000 Gifts-to- Go.com: $220,000 = 3.1 $70,000
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6-10 Asset Turnover Net Sales = Asset Turnover Total Assets Stores: $700,000 = 1.84 $380,000 Gifts-to- Go.com: $440,000 = 2.09 $211,000
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6-11 Return on Assets Net Profit Margin x Asset Turnover = Return on Assets Stores: 8.54 x 1.84 = 15.7% Gifts-to- Go.com 10.3 x 2.09 = 21.3%
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6-12 Profit Management Asset Management The Strategic Profit Model Net Sales Cost of goods sold Variable expenses Fixed expenses Gross margin Total expenses Net profit Net Sales Net profit margin Asset turnover Return on assets ÷ - - + Inventory Accounts receivable Other current assets Total current assets Fixed assets Net sales Total assets + + + ÷ x
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6-13 Setting and Measuring Performance Objectives
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