Absentee Assignment for session 16

Learnings:

Working Capital Management & ROI

All vendors, distributors and retailers are interested in the return on working
capital employed.

Distributors and vendors are concerned about two key aspects:

profit and cash – maximize profit by minimizing cash requirement. ROI can be
increased by increasing profit and by reducing investment requirement.
Increasing profit can happen by increasing sales revenue or by reducing
expenses and in expenses cost of goods sold (COGS) is the major component
that is focused on. However, one has to check all other retail components such
as goods returns, payments, transportation charges and other options to
reduce costs.

But more important than anything in business is cash. Vendors and distributors
want cash to

1). hold inventory and

2). extend credit in the market.

ROI for distributor:

RoI or Return on Investment = Returns/ Net Investment. Returns = Earnings –
Expenses. Earnings = Gross Margin that the dealer enjoys (Usually 6% – 8% in
FMCG companies)

• RoI or Return on Investment = Returns/ Net Investment

• Returns = Earnings – Expenses
• Earnings = Gross Margin that the dealer enjoys (Usually 6% – 8% in
FMCG companies)
• Expenses = Direct Expenses + Indirect Expenses