practice 6

Flashcard maker : Lily Taylor
Return on assets (ROA) is the profit generated by the assets possessed by the firm.
T
Self-gratification for the retailer is classified as a societal objective.
F
Gross margin are the total revenues received by a retailer that are related to selling merchandise during a given time period minus returns, discounts, and credits for damaged merchandise.
F
Cost of goods sold (COGS) is the amount a retailer pays to vendors for the merchandise the retailer sells.
T
The formula for calculating inventory turnover is: Inventory turnover = Cost of goods/Total inventory.
F
The formula for calculating asset turnover is: Asset turnover = Cost of goods/Total assets.
F
The debt-to-equity ratio is the retailer’s short- and long-term debt divided by the value of the owners’ or stockholders’ equity in the firm.
T
The quick ratio is short-term assets divided by short-term liabilities.
F
Top-down planning means that goals get set at the top of the organization and are passed down to the lower operating levels.
T
Output measures assess the results of a retailer’s investment decisions.
T
Jake, who runs a video rental shop, finds its rewarding to interact with customers who like movies. Hence, he is recognized in the local community. Which objective of retailing does Jake emphasize by this practice?
Personal objective
Which of the following statements is not true about the strategic profit model?
It decomposes return on assets (ROA) into net profit and operating expenses.
Which of the following is an integral part of the strategic profit model?
Asset turnover
What does asset turnover measure?
It is the retailer’s net sales divided by its assets.
Operating profit margin is also known as:
earnings before interest, taxes, and depreciation (EBITDA).
If you had $50,000 and you wanted to invest in stocks, you have two options. Which of the following ratios would best help you to decide on your investment?
Return on assets
By knowing the return on assets for his bakery shop, Chuck will know:
how much profit was generated from his investment in assets.
Which of the following statements does not describe asset turnover?
It suggests the profit management path.
The strategic profit model decomposes ROA into two components:
operating profit margin percentage and asset turnover.
The information used to analyze a firm’s profit path comes from the:
income statement.
Tony wanted to know what the net sales and the net profit after tax were last year for his nephew’s business, The Big Guy Shop Inc. Tony should look at the store’s:
income statement.
_____ are the total revenues received by a retailer that are related to selling merchandise during a given time period.
Net sales
Which of the following is not a component in the calculation of net sales?
Interest
The amount paid for the merchandise by the retailer is the:
cost of goods sold.
What measures the profitability of products that are sold?
Gross margin
_____ gives the retailer a measure of how much profit it is making on merchandise sales without considering the expense associated with operating the store.
Gross margin
The formula for calculating gross margin is:
net sales minus the cost of the goods sold.
Which of the following statements does not describe gross margin?
It is a measure of return on assets.
What ratio should a retailer use to best compare the performance of cashmere sweaters versus cotton sweaters?
Gross margin percent
How is gross margin percent calculated?
Gross margin divided by net sales
The hosting of a website for the purpose of online retailing would be classified as a(n):
operating expense.
What is net profit?
Operating profit less interest, taxes, and depreciation
Which of the following is expressed as a percentage of net sales?
Net profit margin
Why would a discount store have a lower gross margin percent than a jewelry store?
Discount stores have a lower priced merchandise strategy.
Why is it important for department stores to achieve a high gross margin?
Their operating expenses are higher than other retail formats.
When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account, he creates a(n) _____ for the retailer.
accounts receivable
The formula for calculating operating expenses percentage is:
operating expenses/net sales.
The information used to analyze a retailer’s asset management path primarily comes from the _____.
balance sheet
Which of the following would be listed as an asset on the balance sheet for a children’s clothing shop?
Accounts receivable
Which of the following would not be listed as an asset on the balance sheet of a hardware store?
Accounts payable
If Mohammed wanted to examine the assets and liabilities of the Silver Exchange Coin Shop for the end of the year, he should look at its _____.
balance sheet
The Bookstore Café is a small restaurant located in a downtown business district. It is opened for breakfast and lunch and serves simple yet nutritious meals as well as books from the New York Times bestseller list. How would you categorize the book inventory, cooking equipment, tables, chairs, and the register?
As assets
Of the following, which can be converted into cash within one year?
Current assets
Which of the following can be considered as a current asset?
Accounts receivable
Which of the following is classified as an asset?
Buildings
When Erica calculates the current assets for her picture framing business, she should not include which of the following?
Her accounts payable
Harriet’s Wimsey is a bookstore for people who love mysteries. How would a complete set of P. D. James mystery novels, a first edition copy of The Maltese Falcon, the money in the cash register, and an IOU from a loyal customer who forgot her wallet one day when she came to purchase the newest Dorothy Cannell book be listed on the store’s balance sheet?
As current assets
As Dean calculates his current assets for his used video game store, he is sure to include which of the following?
Merchandise inventory
When Nick is figuring the current assets for his nail salon, he should be certain to include _____ in his calculations.
the cash in the drawer
What is inventory turnover used to evaluate?
It is used to see how quickly retailers sell their investment in inventory.
Inventory turnover:
is calculated by dividing cost of goods by average inventory
Which of the following would be a fixed asset?
The store building
Which of the following is an example of a fixed asset for a music store?
A computer that is used to manage the store’s inventory
Which of the following is not an example of a fixed asset for a lawn care service?
Its accounts receivable
Asset turnover _____.
is net sales divided by total assets
_____ equals a company’s net sales divided by its total assets.
Asset turnover
The strategic profit model is useful to retailers because it:
combines profit margin management and asset management.
What ratio would an investor use to determine the financial health and risk of bankruptcy of a retailer?
Debt-to-equity ratio
Which of the following statements is true of debt-to-equity ratio?
It measures how much money a company can safely borrow over long periods of time.
Which of the following measures the retailer’s ability to pay its suppliers with assets such as cash and accounts receivable
Current ratio
Which of the following statements is true of current ratio?
It evaluates the retailer’s ability to pay its short-term debt obligations.
Which of the following has to be taken into consideration while calculating current ratio?
Short-term loans
_____ is also known as the acid-test ratio.
Quick ratio
The formula to calculate quick ratio is:
(short-term assets-inventory)/short-term liabilities
What is wrong with the following performance objective written for a shop specializing in furs: “To earn $1,000,000 in profit during calendar year 2011”?
The objective does not state the resources needed to accomplish it.
What is wrong with the following performance objective which was set by a retailer that specializes in advertising collectibles: “To increase sales by three percent on a $400,000 investment in inventory and real estate”?
The objective lacks a specific time frame.
Michaels sets goals at the top of the organization. Then, breaks down these objectives for merchandise categories and regions. When these objectives reach the buyers, each objective is personalized. What does this process demonstrate?
Top-down planning
The executives for New Haus LLC set the retail objective for the company. These objectives are broken down in order to create the objectives for each merchandise category, as well as for each region of the country. Further breakdowns of the objectives occur when the executives’ objectives reach the buyers who must personalize those objectives. This is an example of _____ planning.
top-down
If the executives for Office Max LLC, a chain of office supply stores, developed the chain’s objectives by asking buyers and store managers to forecast sales and merchandise for the next year, and then transmitted those estimates up the organization to the top level, it would be an example of _____ planning.
bottom-up
Because of the principle of _____, no individual Kohl’s store should be held financially responsible if the buyers for Kohl’s lower prices to get rid of merchandise and sales suffer.
accountability
There are many Kroger supermarkets. Because of the principle of _____, no individual store should be held financially responsible for the upkeep of the supermarket’s headquarters in Cincinnati, Ohio, or for the salary of the CEO.
accountability
Which of the following would be the best example of an input measure?
Inventory
Which of the following assesses the results of a retailer’s investments?
Output measures
hich of the following would be the best example of an output measure?
Net profits for the store for the year
Which of the following is used to assess overall performance at a corporate level?
Comparable-store sales growth
Which of the following would be the best example of an output measure?
Monthly net profits for the entire store
Which of the following is an example of a productivity measure?
Inventory turnover
Identify and describe the three types of objectives retailers might have in the strategic planning process.
Financial objectives such as return on assets; societal objectives such as how the retailer may benefit society and give back; and personal objectives such as self-gratification, status, and respect are
Identify and describe the two paths of activities that determine return on assets (ROA).
One path is profit margin management. The information used to examine the profit margin management path comes from the retailer’s income statement, also called the statement of operations. The income statement summarizes a firm’s financial performance over a period of time, typically a quarter (three months) or year. The four components in the profit margin management path are net sales, cost of goods sold (COGS), gross margin, and operating profit margin. The other path is asset management. The information used to analyze a retailer’s asset management path primarily comes from the retailer’s balance sheet. While the income statement summarizes financial performance over a period of time (usually a year or quarter), the balance sheet summarizes a retailer’s financial position at a given point in time, typically the end of its fiscal year. Assets are economic resources (e.g., inventory, buildings, computers, store fixtures) owned or controlled by a firm. There are two types of assets, current and fixed.
Identify and describe the measures retailers use to assess their financial performance.
Gross margin: Net sales – COGS; GM% = GM$/Net sales
Operating profit margin: Gross Margin – Operating Expenses-Extraordinary (recurring) operating expenses; Operating profit margin% = Operating profit margin$/Net sales
Net profit margin: Operating profit margin – Extraordinary nonrecurring expenses-taxes-interest-depreciation; Net profit% = NP$/Net sales
Define debt-to-equity ratio.
The debt-to-equity ratio is the retailer’s short- and long-term debt divided by the value of the owners’ or stockholders’ equity in the firm. The debt-to-equity ratio measures how much money a company can safely borrow over long periods of time. A high ratio means the retailer faces greater risk and more potential for bankruptcy.
Define liabilities.
Liabilities are a company’s debts, such as its accounts payable, which is the money it owes its vendors for merchandise.
Define current ratio.
The current ratio is probably the best-known and most often used measure of financial strength. The current ratio is short-term assets divided by short-term liabilities. It evaluates the retailer’s ability to pay its short-term debt obligations, such as accounts payable (payments to suppliers) and short-term loans payable to a bank, with short-term assets such as cash, accounts receivable, and inventory.
What differentiates a well-designed performance objective from one that is ill-conceived?
A well-designed performance objective includes (1) the performance desired, including a numerical index against which progress can be measured, (2) a time frame within which the goal is to be achieved, and (3) the resources needed to achieve the objective.
What is same-store sales growth and how retailers use it?
A commonly used measure of overall performance is comparable-store sales growth (also called same-store sales growth), which compares sales growth in stores that have been open for at least one year. Growth in sales can result from increasing the sales generated per store or by increasing the number of stores. Growth in same-store sales assesses the first component in sales growth, and thus indicates how well the retailer is doing with its core business concept.
What are the critical assets controlled by a store manager?
The critical assets controlled by a store manager are use of store space and the management of employees. Thus, measures of store operations productivity include sales per square foot of selling space, sales per employee (or sales per employee per working hour, to take into account that some employees work part-time), theft by employees and customers (referred to as inventory shrinkage), store maintenance, and energy costs (lighting, heating, and air conditioning).

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