Chapter 12

Profit and Loss (Income) Statement

A financial summary showing a retailer's profitability by detailing revenues earned and expenses incurred.

Net Sales

Total revenue from selling merchandise.

Cost of Goods Sold (COGS

The cost of acquiring and preparing merchandise for sale.

Gross Profit (Margin)

The profit before operating expenses, calculated as Net Sales minus Cost of Goods Sold.

Operating Expenses

Costs associated with running the business, excluding COGS (e.g., rent, salaries, utilities).

Taxes

Taxes owed to the government on profits.

Net Profit After Taxes

The retailer's final profit after all expenses and taxes are accounted for.

Balance Sheet

A snapshot of a retailer's financial position at a specific time, categorizing assets, liabilities, and net worth.

Assets

Resources owned by the company (e.g., cash, inventory, property).

Liabilities

Debts owed to creditors (e.g., loans payable, accounts payable).

Net Worth (Shareholder Equity

The difference between assets and liabilities, representing the owners' investment in the business

Net Profit Margin

Net Profit After Taxes divided by Net Sales, indicating the percentage of profit per sales dollar.

Return on Assets (ROA)

Net Profit After Taxes divided by Total Assets. Measures how effectively a retailer utilizes its assets to generate profit.

Quick Ratio

Measures a retailer's ability to meet short-term obligations using liquid assets like cash and receivables.

Current Ratio

Assesses a retailer's overall ability to pay current liabilities with current assets.

Asset Turnover

Net Sales divided by Average Total Assets, showing how efficiently a retailer uses assets to generate sales.

Collection Period

The average time it takes a retailer to collect payment from customers after a sale is made.

Economic Conditions

Slow economic growth can impact consumer spending and retailer profitability.

Funding Sources

Retailers may utilize various methods to raise capital, including:

• Mortgage refinancing (to take advantage of lower interest rates).

• Real Estate Investment Trusts (REITs) to finance store construction.

• Initial Public Offerings (IPOs) to raise capital by selling shares to the public.

Mergers, Consolidations, and Spinoffs

Retailers may merge or consolidate operations to gain a competitive edge. Spinoffs involve creating a new company from an existing one.

Bankruptcies and Liquidations

Some retailers may be forced to declare bankruptcy or liquidate assets due to financial difficulties.

Accounting Practices

Ethical concerns can arise regarding accounting methods used to portray a retailer's financial health.

Retail Budgeting

Outlines planned expenses for a period, aligning spending with performance goals and promoting coordinated spending.

Budgeting Authority

Determines who is responsible for creating and approving the budget.

Time Frame

What period does the budget cover (e.g., annual, quarterly)?

Budgeting Frequency

How often will the budget be reviewed and updated?

Cost Categories

How will expenses be categorized for budgeting purposes?

Level of Detail

Considers how granular the budget should be in terms of expense breakdowns.

Budget Flexibility

How much