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Unit 10

# Unit 10

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09/08/2012

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UNIT 10 RETAIL MATHEMATICS FORPERFORMANCE ANALYSIS
Structure
10.0 Objectives10.1 Introduction10.2 Financial for Store Inventory
10.2.1 Inventory10.2.2 Turn Returns into Sales (Sale of Returned Goods)
10.3. Financial for Store Operation and Performance10.4 Break Even Analysis10.5 GMROI10.6 Profit and Loss Account10.7 Let Us Sum Up10.8 Key Words10.9 Answers to Check Your Progress10.10 Terminal Questions
10.0 OBJECTIVES
After studying this unit, you should be able to:

explain the Retail financial formula that concern the Store operations;

describe the financial methods that help to measure the Store performances;

explain the use of these tools to analyse the Store performance and help takingfinancial decisions;

discuss the Break-Even Analysis;

describe GMROI;

analyse the Profit and Loss Account.
10.1 INTRODUCTION
The health of Retail Store performance lies in the profitable operation of theStore, financial efficiency, inventory management, pricing method, control onincome and expenditure and finally ability to make the profit margin. It is

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Retail Mathematics forPerformance Analysis
important to study and understand different aspects of inventory management,cost of inventory, margin achieved against the inventory stocked, selling andprofits earned in order to know the performance of a Store. There are commonformulas and mathematical tools being practiced to measure each of the aspectand to know about the financial performance of the store operations; theseformulas will help to arrive at the basics of Retail Store Profit & Loss (P&L)Accounting, and P&L Account statement and its constituents.The formulas of financial and performance analysis are designed to meet theneeds of the Store Organization, short and long term objectives, performancemeasurement of the Store operation and the individuals work for it. Theseformulas help to understand the actual operation and its performance against thestandards. In this unit, you will learn about the financial of store inventory andhow to calculate inventory turnover. You will further learn the formulas tomeasure the performance of the Store and about break-even analysis. You willalso learn about GMROI and its calculation and Profit and Loss Accounts.
10.2 FINANCIAL FOR STORE INVENTORY
Retail store keeps numerous amounts of merchandise or stock keeping units(SKUs), to serve the need of the customer who patronize. The SKUs vary fromone Store to other, one location to other and one region to other. The SKUs arenormally planned based on the requirement and demand level of customer theStore attracts. It sells to satisfy the customer. However, while meeting thedemands of the customer, the Store has to preserve the core objective the Store,that is, earning profit. Given the competition, the supply and demand factors, costof direct and indirect expenses, it is difficult to earn profit at every SKU the Storehandles. But, a prudent management of inventory, cost management and SKUdecisions, will help the Store to maintain the level of profit earning.
10.2.1Inventory
Inventory is the merchandise a Retail Store has on-hand (all stock). The term alsorefers to the act of counting, itemizing and recording in-stock merchandise orsupplies kept in a store at a particular point of time. The number of times during agiven period (month or season) that the average inventory on hand is sold andreplaced.Controlling inventory turnover is the key to keeping our shelves stocked withinteresting products and keeping the cash flowing. We want to buy themerchandise, move it quickly and then repurchase more products for our

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customers. However, if the turnover becomes too high, sales may be lost becauseof reduced customer selection.
How to Calculate Inventory Turnover?
Here's how we calculate inventory turns to help create a proper inventory control:
Here is How:
1.

Subtract Ending Inventory At Cost4.

Subtract Cost of Scrapped and Lost items (if applicable)5.

Divide by the Cost of Sales6.

The result is the number of times the average inventory is sold and replaced.
Inventory Turnover = (Beginning Inventory at Cost + Purchases at Cost
–
End Inventory at cost
–
cost of lost or scrapped item) divided byCost of Sales

You should note that:1.

Inventory turnover can be calculated in whole, as well as by department ormerchandise category.2.

Inventory turns can be calculated by the month, quarter, season or year.
10.2.2

Turn Returns into Sales (Sale of Returned Goods)
Once a product or service is sold to a customer, the last thing a Retailer wants isto get that item back. However, the return of purchased item and refunds are areality of retailing and also a measure to satisfy the customers. Following are thecustomer service skills to how to turn those inconvenient returns into exchangesand avoid refunds.1.

Listen and Learn:
Start the return transaction by genuinely listening to thecustomer. This allows the customer to be heard and it is your chance to
understand the Shopper’s needs. Once the customer is finished speaking,
begin asking any unanswered questions to establish the reason for the return.Explore why is the item being returned? What is wrong with the item? Whatend result is the customer seeking? Once the reason for the return is known,customer care associate can offer solutions to the problem. If not possible at

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