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Chapter 6 Financial Strategy

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The document discusses financial strategy and objectives for businesses. It outlines that return on assets (ROA) is the appropriate measure of financial performance. It also discusses societal and personal objectives for businesses. The strategic profit model is introduced as a method to summarize factors that affect financial performance through analyzing profit margin and asset turnover. Key components of the profit margin path and asset management path are defined. Specifically, it examines how inventory turnover, online costs, and other expenses factor into financial strategy.

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Chapter 6 Financial Strategy

Uploaded by

Lexy
114 views3 pages
The document discusses financial strategy and objectives for businesses. It outlines that return on assets (ROA) is the appropriate measure of financial performance. It also discusses societal and personal objectives for businesses. The strategic profit model is introduced as a method to summarize factors that affect financial performance through analyzing profit margin and asset turnover. Key components of the profit margin path and asset management path are defined. Specifically, it examines how inventory turnover, online costs, and other expenses factor into financial strategy.

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The document discusses financial strategy and objectives for businesses. It outlines that return on assets (ROA) is the appropriate measure of financial performance. It also discusses societal and personal objectives for businesses. The strategic profit model is introduced as a method to summarize factors that affect financial performance through analyzing profit margin and asset turnover. Key components of the profit margin path and asset management path are defined. Specifically, it examines how inventory turnover, online costs, and other expenses factor into financial strategy.

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© All Rights Reserved
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
114 views3 pages

Chapter 6 Financial Strategy

Uploaded by

Lexy
The document discusses financial strategy and objectives for businesses. It outlines that return on assets (ROA) is the appropriate measure of financial performance. It also discusses societal and personal objectives for businesses. The strategic profit model is introduced as a method to summarize factors that affect financial performance through analyzing profit margin and asset turnover. Key components of the profit margin path and asset management path are defined. Specifically, it examines how inventory turnover, online costs, and other expenses factor into financial strategy.

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Chapter 6 Financial Strategy

Objective and Goals

 Financials Objectives

o Appropriates measure is return on assets (ROA)

 Societal Objective

o Make the world a better place to live

o More difficult to measure

 Personal Objective

o Especially for small, independent business

o Self-gratification, status, respect

 Social Responsibility

o Achieving societal objectives is important to Blake Mycoskie, CEO and chief giving

officers of TOMS shoes,

Strategic Profit Model

 Strategic Profit Model – a method for summarizing the factors that affect a firm’s financial

performance, as measured by return on assets.

 Exhibit 6-1 Profit Margin Management Path

o Profit Margin management path: Net Profit Margin/Net Sales= Net Profit margin (in %)

o Assets turnover management path: Net Sales/ Total Assets= Assets turnover

o Both Equal to be the Return on Assets

 Net Profit Margin

o How much you profit a firm makes divided by net assets

 Assets Turnover
o Retailers net sales divide by its assets

 ROA determined by multiplying these two things together

 Determining ROA

o Bakery is a low profit/ high turnover

o Jewelry high profit/ Low turnover

 Profit Margin management path

o Income statement (statement of operations)

o Profit and Loss (P&L) statement

o Component in the profit margin management path

 Net Sales

 Cost of Goods Sold (COGS)

 Gross Margin

 Gross Profit

 Slotting fee or allowance

 Chargeback fee

 Operating Expenses

 Selling, general, and administrative expenses (SG&A)

 Operating Profit Margin

 Net Profit margin

 Net income

 Analyzing Performance in the Profit Margin Management Path

 Gross Margin %

 Operating Expenses %

 Operating Profit margin %


 Asset Management Path

o Assets are economic resources (inventory, buildings, computers, fixtures) owned or

controlled by a firm

o Current Assets

 Cash and cash equivalents

 Merchandise inventory

 Accounts receivable

o Inventory Turnover

 Cost of Online Channels

o The retailer’s cost to sell a pair of jeans online is higher than in a store because of

shipping, handling, and returns.

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