constant particularly Cost of Sales and other expenses the ROI will improve

Constant particularly cost of sales and other

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constant particularly Cost of Sales and other expenses the ROI will improve because the margins will improve. Second if the Cost of Sales can be reduced, Sales realization remaining constant, then also the margin can improve leading to better ROI. Third if the selling, distributing, marketing and administrative expenses can be reduced, Sales and Cost of sales remaining constant the net margin will improve resulting in better ROI. In this case actually 4 items of expenses are playing a vital role, namely selling expenses, marketing expenses, distribution expenses, administration expenses. Again in terms of the working capital and fixed capital, if either of them or both of them can be reduced, Sales remaining constant, the turnaround of investment will increase, leading to a better ROI. 3.2 SUMMARY Margin is denoted as a percentage of sales whereas markup is denoted as a percentage of cost. ROI is the profit generated by the money a business owner puts into the business. To improve ROI: 1. Increasing sales realization, other things remaining constant, particularly Cost of Sales and other expenses the ROI will improve because the margins will improve. 2. If the Cost of Sales can be reduced, Sales realization remaining constant, then also the margin can improve leading to better ROI. 28
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PROFIT CENTER EVALUATION 3. If the selling, distributing, marketing and administrative expenses can be reduced, Sales and Cost of sales remaining constant the net margin will improve resulting in better ROI. 3.3 SELF ASSESSMENT QUESTIONS 1. Describe a Dupont Control Chart. 2. ROI is simply the net profit divided by the investment, yet, why is it important to look at the constituent elements carefully? 3. How does ROI improve if the selling & distribution expenses are controlled? 4. A business that is carried out on the basis of sales on credit, may not have an ROI better than one that carries on business on the basis of sales against cash – do you agree? 29
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PROFIT CENTER EVALUATION REFERENCE MATERIAL Click on the links below to view additional reference material for this chapter Summary PPT MCQ Video Lecture 30
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TERRITORY AND PRODUCT LEVEL PROFITABILITY Chapter 4 TERRITORY AND PRODUCT LEVEL PROFITABILITY Learning Objectives After going through this chapter you should be able to: Evaluate performance of sales revenue, expenses and working capital controls at territory levels as well as at product levels. Understand the different types of costs and how are they controlled and allocated. Also know, methods to evaluate productivity Structure: 4.1 Costs 4.2 Summary 4.3 Self Assessment Questions In this chapter we shall look at evaluating performance at territory levels, and also at product levels. Marketing initiatives translate into sales revenues being generated at sales unit levels. These levels can be as elementary as at sales men territory levels, or can be stage wise aggregated: to sales supervisory levels, to area sales manager levels, to branch manager levels & ultimately, to zonal and/or national level.
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