Financial Statements & Ratios
Return On Investment
Companies should earn an adequate return on investment to satisfy the owners’ needs. The following table provides Profit Planning Group’s recommended guidelines for return on assets.
Pr imar y F i nanc i a l Obj ec t i ve
Return On Asset s %
E f fec t On Bus i ness Per formance
Mi nimum
4 - 5
Minimum long-term return needed to ensure survival
Tar get
8 - 10
Satisfies basic owner needs but does not allow for growth or inflation
Top Per formance
15 - 20
Would make the store one of the top profit producers
The following ratios take into account funds owners receive as salary in addition to profit.
Owners' Discretionary Profit = Profit Before Taxes + Owner & Officer Salary & Bonus This figure adds salary and bonuses paid to owners and officers to profits to reflect in one figure the funds flowing to owners.
Owners’ Discretionary Profit Margin = Owners’ Discretionary Profit ÷ Net Sales Simply Owners’ Discretionary Profit as a percentage of sales. Owners’ Discretionary Return on Assets = Owners’ Discretionary Profit ÷ Total Assets The return generated by each dollar of asset investment. Owners’ Discretionary Return on Net Worth = Owners’ Discretionary Profit ÷ Net Worth The return the owner receives on their personal investment.
Conven-
Contractor
ience
Core
Super
Home Center
Oriented
Hardware
Hardware
Hardware
Supply
Sample Size
132
358
188
46
23
Strategic Profit Model
Profit Margin Asset Turnover
7.3 2.2
9.6 2.3
10.4
8.4 2.3
6.3 2.0
2.3
Return On Assets (Pre-Tax %)
16.1
22.1
23.9
19.3
12.6
Financial Leverage
1.4
1.5
1.5
1.3
1.2
Return On Net Worth (Pre-Tax %)
22.5
33.1
35.8
25.1
15.1
Owners' Return
Owners' Discretionary Profit Margin Owners' Discretionary Return On Assets
11.8 26.8 42.0
13.1 32.4 50.2
12.5 32.2 51.4
11.8 28.2 35.6
9.2
15.3 24.2
Owners' Discretionary RONW
6
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