Retail Financial Terms Explained
Navigate the financial landscape of retail with this essential glossary. It breaks down complex financial terms and metrics, crucial for making informed business decisions.
GMROI (Gross Margin Return on Investment): A profitability ratio that analyses the ability to turn inventory into cash above the cost of the inventory. It’s a key performance indicator in retail.
COGS (Cost of Goods Sold): The direct costs attributable to the production of the goods sold in a company. This includes the cost of the materials and labor directly used to create the product.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company’s overall financial performance and is used as an alternative to simple earnings or net income.
Liquidity Ratios: Financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital.
Break-Even Point: The sales amount—in either unit or revenue terms—that is required to cover total costs, both fixed and variable.
Cash Flow: The total amount of money being transferred into and out of a business, especially affecting liquidity.
Direct Costs: Costs that can be directly attributed to the production of the goods or services a company sells.
Fixed Costs: Business expenses that remain the same regardless of the level of production or sales.
Variable Costs: Costs that vary directly with the level of production or sales volume.
Gross Profit Margin: A company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.
Net Profit Margin: The ratio of net profits to revenues for a company, showing how much of each dollar earned by the company is translated into profits.
Operating Expenses: The costs associated with running a business that are not directly tied to the production of the product or service.
ROI (Return on Investment): A measure used to evaluate the efficiency or profitability of an investment.
Debt-to-Equity Ratio: A measure of a company’s financial leverage, calculated by dividing its total liabilities by stockholders’ equity.
Inventory Turnover: A ratio showing how many times a company’s inventory is sold and replaced over a period.
Markup: The difference between the cost of a good or service and its selling price.
Retail Pricing Strategy: The approach a retailer takes to price its products for sale to achieve a profitable margin while attracting customers.
Working Capital: The difference between a company’s current assets and current liabilities, indicating the short-term liquidity of a company.
A solid grasp of financial terminology is vital for retail success. Use this glossary as a resource to enhance your financial acumen and guide your retail strategy.
Financial Forecasting: The process of estimating or predicting how a business will perform in the future.