INTRODUCTION A retailer’s financial objectives directs its overall strategy. When a retail store or chain is established the capital requirements are projected. The major investments are analyzed, costs and stocks are estimated. Having projected the capital requirements, the retailer has to identify the source of funding and establish operations.
FINANCIAL STRATEGY Financial analysis helps to evaluate a retailer’s business model and marketing strategy. This analysis provides insights for developing strategies, expansion plans, and globalizing retail operations. Financial analysis is necessary before deciding on the retail model, including the merchandising strategy, the store positioning, store location, promotion strategy, etc.
FUNDING RETAIL VENTURES AND RAISING CAPITAL Once the retailer has finalized the business model, it has to raise funds. The promoter has to raise the initial capital when setting up the retail operation. A retailer has various options such as the following for raising funds: Approaching finance companies or banks Private equity funding Franchising Supplier credit
ADVANTAGES OF BUDGETING Budgeting tends to improve the quality of planning. Budgeting places definite goals and fixes responsibilities of individuals. Budget replaces guesswork, to a large extent, by facts. A comparison of actual cost can lead to overall efficiency and improvement. It permits ‘control by exception’ so that only variances from the forecast need be brought to the management’s attention.
DISADVANTAGES OF BUDGETING Budgeting can become meaningless and an unduly expensive exercise if it is not implemented for continual improvements. Too much of reliance on budget can destroy innovations and flexibility of actions. Reports and sophisticated management tools may clutter the common sense and may result in over or under budgeting.
FINANCIAL STATEMENTS Retailing has to maintain accounting records as per statutory requirements. They are required for: Records are to be maintained if bills and taxes are paid on time, pay rolls met, and customers billed correctly. Evaluating performance of the firm depends on these statements.
ESSENTIALS Creditors require before granting loans Various local government agencies require reports on taxable income, sales tax collected, etc. Stockholders also require if the firm is publicly owned. auditors
Financial analysis helps in planning, coordinating,
controlling and monitoring retail operations. The retail uses: Breakeven analysis: The study of the level of sales at which the retailer exactly covers the costs and neither makes profit nor loss. Ratio analysis: The relationship between two variables that shows the profitability and liquidity position of retails.
ROCE = pre-tax profit/(shareholder’s equity + reserves) Current ratio = current assets/current liabilities Quick ratios = current assets – stocks/ current liabilities Comparative balance sheets