1. Operations Management: Financial Dimensions
Chapter 12
Operations Management: Financial Dimensions
RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH,
9th Edition
BERMAN EVANS

2. Chapter Objectives To define operations management
To discuss profit planning
To describe asset management, including the strategic profit model, other key business ratios, and financial trends in retailing
To look at retail budgeting
To examine resource allocation

3. Profit Planning Profit-and-loss (income) statement
Summary of a retailer’s revenues and expenses over a given period of time
Review of overall and specific revenues and costs for similar periods and profitability

4. Major Components of a Profit-and-Loss Statement
Net Sales
Cost of Goods Sold
Gross Profit (Margin)
Operating Expenses
Taxes
Net Profit After Taxes
Net Sales
$330,000
CGS
$180,000
Gross Profit
$150,000
Operating Expenses
$ 95,250
Other Costs
$ 20,000
Total Costs
$115,250
Net Profit before Taxes
$ 34,750
Taxes
$ 15,500
Net Profit after Taxes
$ 19,250

5. Asset Management The Balance Sheet Assets Liabilities Net Worth
Net Profit Margin
Asset Turnover
Return on Assets
Financial Leverage

6. Figure 12.1 The Strategic Profit Model

7. Other Key Business Ratios
Quick Ratio
Current Ratio
Collection Period
Accounts Payable to Net Sales
Overall Gross Profit

8. Financial Trends in Retailing
Slow growth in U.S. economy
Funding sources
Mergers, consolidations, spinoffs
Bankruptcies and liquidations
Questionable accounting and financial reporting practices

9. Funding Sources Mortgage refinance (due to low interest rates)
REIT (retail-estate investment trust) to fund construction
Company dedicated to owning and operating income-producing real estate
Initial public offering (IPO)

10. Figure 12.2 Rebuilding Kmart

11. Budgeting
Budgeting outlines a retailer’s planned expenditures for a given time based on expected performance
Costs are linked to satisfying target market, employee, and management goals

12. Figure 12.3 The Retail Budgeting Process

13. Budget Benefits Expenditures are related to expected performance
Costs can be adjusted as goals are revised
Resources are allocated to the right areas
Spending is coordinated
Planning is structured and integrated
Cost standards are set
Expenditures are monitored during a budget cycle
Planned budgets versus actual budgets can be compared
Costs/performance can be compared with industry averages

14. Preliminary Budgeting Decisions
Specify budgeting authority
Define time frame
Determine budgeting frequency
Establish cost categories
Set level of detail
Prescribe budget flexibility

15. Cost Categories Capital expenditures Fixed costs Direct costs
Natural account expenses

16. Ongoing Budgeting Process
Set goals
Specify performance standards
Plan expenditures in terms of performance goals
Make actual expenditures
Monitor results
Adjust budget

17. Resource Allocation Capital Expenditures
Long-term investments in fixed assets
Operating Expenditures
Short-term selling and administrative costs in running a business

18. Enhancing Productivity
A firm can improve employee performance, sales per foot of space, and other factors by upgrading training programs, increasing advertising, etc.
It can reduce costs by automating, having suppliers do certain tasks, etc.