Gmroi Calculation

Topics: Financial ratios, Generally Accepted Accounting Principles, Wal-Mart Pages: 2 (339 words) Published: May 9, 2013
Q2. Explain from a marketing perspective why you would expect gross margin percentage, expense to sales ratio, net profit margin, inventory turnover, and asset turnover to be different for a grocery store chain versus a department store chain.

Calculations based on data from given case for Winn Dixie and Dillard:  | Gross Profit Margin| Expense to sales ratio| Net Profit Margin| Inventory Turnover| Asset Turnover| Winn Dixie| 27.50%| 25.42%| 2.08%| 7.2525| 4.5267|

 |  |  |  |  |  |
Dillard| 34.87%| 32.13%| 2.73%| 2.4191| 0.9797|

Gross profit margin:
[Gross Margin / Net Sales]
For a departmental store that sells, high margin products such as household item generate more margins compared to a grocery store where SKU’s are of low margin. This would explain why Dillard has a high Gross Profit margin. Expenses to sales ratio:

[Total Expenses/Net Sales]
It is natural for expenses to be higher for departmental stores. Owing to the additional sales force, dedicated personal for some products, the fixed costs are higher compared to a relatively self-serving grocery store.

Asset Turn Over:
[Net Sales/ Total Assets]
Department stores are usually larger than grocery stores. The facilities need to include larger retail space and expensive infrastructure to sell certain household items. Also handling the stock and inventory is much more difficult than assorting groceries. This might explain why Dillard huge assets compared to Winn Dixie. Hence the low asset turn over.

Inventory Turn Over:
The same logic applies to department stores. Groceries operate on fresh food items which are usually sold without maintaining large inventory. However departmental stores need to maintain inventory to save on transaction costs and logistics.

Net Profit Margin:
This is an extension of the Gross profit margin explanation. Some SKU’s in departmental stores generate more margins than groceries. However the...
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