![]() Spend time with the 5-year trends charts for your industry. Go to your retail segment here at The Institute. Even better, spend some time with the charts showing the 5-year trends for your industry. See the most recent benchmark numbers for your store type. Simply go to your retail segment here at The Retail Owners Institute. Once you have these four key ratios, you can readily compare your financial situation to other retail operations like yours. The Best Part: Compare Your Ratios to Other Stores Like Yours (Note: profit before taxes measures your operating efficiency, as opposed to gross margin percentage which measures your sales efficiency.) Using this example, of every $1 in sales, only 1% (1 cent) remains as profit before taxes. Profit Before Taxes ÷ Sales = Profit Before Taxes Percent The formula is Profit before Taxes divided by Sales. ![]() It indicates the percentage of original sales dollars remaining as profit, and taxed as such. Profit before taxes percentage measures your profitability after sales and all deductible expenses are recognized. "Profitability": Profit Before Taxes Percentage The result is 166 days, which means at any given moment in time, 166 days (or five and a half months) of inventory (e.g., "one turn's worth" of inventory) is the maximum amount of inventory to have on hand. In the above example, 365 is divided by 2.2. To convert inventory turnover into days, take 365 days and divide by the turnover rate. Theoretically, this means inventory is “sold out” and “replaced” 2.2 times per year. Sales divided by Average Inventory of Goods Sold divided by Average Inventory ÷ Average Inventory = Inventory Turnover There are two formuals to calculate turns one uses inventory at cost, the other uses inventory at retail. It measures how often, at your present rate of sales, your entire inventory is completely sold and replaced during a given period. Inventory turnover is essential to all retailers, from the newest start-up to Fortune 500 chains. In this example, there is $1.26 of current assets available to cover every $1 of current debt. The current ratio is calculated by dividing your current assets by your current liabilities:Ĭurrent Assets divided by Current Liabilities = Current Ratio For retailers, typically the largest amount in current assets is your inventory. Similarly, current liabilities are debt obligations due within one operating cycle. Remember, current assets are cash or assets which can be converted to cash in one operating cycle (usually one year). (Or, put another way: it indicates your ability to pay your bills on time!) The current ratio measures how well you can cover current liabilities with liquid assets. In this example, there are $3.03 of creditors’ funds for every $1 of owners’ funds invested in the business.Ĭurrent ratio is an indicator of solvency, or the ability to meet your current debt obligations. ![]() Total Liabilities divided by Net Worth = Debt-to-Worth Use the amounts listed on your balance sheet. To calculate debt-to-worth, divide your total liabilities by your net worth (equity). So, debt-to-worth is a measure of the safety of your business. In other words, the higher the ratio the riskier the business. The more a company is supported by debt, the riskier it is considered. It compares the amount invested in your business by creditors to that invested by the owners. The debt-to-worth ratio is the #1 measure of the financial strength of a business. Based on the Middle Quartiles results, The ROI calculates GMROI for each segment, and then prepares our Five Year Trend Charts for each of the 6 Key Ratios for each segment. RMA presents their data in 3 sections: the Top Quartile, the Middle Quartiles, the Bottom Quartile. RMA collects financial statements from banks, and aggregates the findings for all industries, not just retailing. Just click its name to go to its own page.Īs is noted on each Benchmarks page, the source data is Risk Management Association's Annual Statement Studies. Go to Key Retail Benchmarks to find your retail segment. In addition, The ROI presents key financial ratios for four major restaurant types. The ROI has charted and graphed the Five-Year Trends of these six key ratio performance metrics for independent retailers. Everything on The ROI site teaches to these 6 key ratios. We focus on these because they represent "controllable variables" for retailers. On these Segment Pages, The ROI presents the 6 key ratios we have selected as particularly important for retailers to monitor. The ROI publishes key financial performance benchmark data in exclusive Five-Year Trend Charts for separate retail segments , from hardware stores to bookstores, clothing stores, gift shops, wine stores, music stores, furniture stores, tire dealers, and more.
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