Core Benchmarks: Company Financial Metrics

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1 Core Benchmarks: Company Financial Metrics Facilitated by Gene Tyndall and Bruce Tompkins September 1-2, 2009 Chicago, IL

Introduction Context for the Financial Metrics Discussion The three key drivers of overall financial performance are: Growth Profitability Capital Utilization/Efficiency (Fixed and

2 Introduction Context for the Financial Metrics Discussion The three key drivers of overall financial performance are: Growth Profitability Capital Utilization/Efficiency (Fixed and Working) There is a significant connection between what we do in the supply chain and our company s financial performance. Copyright 2009 Supply Chain Consortium. All rights reserved. 2

3 Session Scope Consortium Data for This Session Will Focus on: Gross profit margin Return on equity (ROE) Return on assets (ROA) Inventory turnover Days of payables outstanding Days of sales outstanding Current ratio Price/sales ratio (P/S ratio) Price/earnings ratio (P/E ratio) Copyright 2009 Supply Chain Consortium. All rights reserved. 3

4 Profitability Metrics Gross Profit Margin Apparel, Fabric and Accessories Automotive, Truck and Vehicles Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/ Appliances Hardware and Home Improvement Gross Profit Margin 38.6% 32.5% 55.8% 32.8% 19.9% 29.4% 35.9% 32.0% 40.3% Gross profit margin measures the profitability of a company calculated by (revenue-cogs)/revenue. Companies in the manufacturing industry have a higher gross profit margin (36%) than those in the retail industry (31%). Top quartile companies across all segments average a gross profit margin of 41.9%. Overall, net profit margin averages 5.5%. Top quartile companies average 7.3%. Copyright 2009 Supply Chain Consortium. All rights reserved. 4

5 Profitability Metrics Return on Equity (ROE) Apparel, Fabric and Accessories Automotive, Truck and Vehicles Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/Appliances Hardware and Home Improvement Return on Equity (Average Percentage) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Average ROE ROE is a measure of how well a company uses its investment dollars to generate earnings growth. It is calculated by (net income/net equity). The average ROE is 19.2%, but top quartile companies have an average ROE greater than 40%. Copyright 2009 Supply Chain Consortium. All rights reserved. 5

6 Profitability Metrics Return on Assets (ROA) Return on Assets (Average Percentage) Return on Assets Apparel, Apparel, Fabric and Fabric Accessories and Accessories 7.5% Automotive, Automotive, Truck and Truck Vehicles and Vehicles 12.8% 9.0% 3.9% Electronics Food and and Beverage Electricals 8.9% Hobby, Toys, Arts, Food Crafts and Sporting Beverage Goods 6.0% Home Products/Furniture/Appliances Hobby, Toys, Arts, Crafts and Sporting Goods 6.4% Hardware Home and Home Products/Furniture/Appliances Improvement 10.8% Hardware and Home Improvement 0% 2% 4% 6% 8% 10% 12% 13.0% 14% Average ROA 16% 18% 20% ROA reflects the number of dollars of earnings derived from company-controlled assets. This measure varies greatly from industry to industry, depending on capital intensiveness. Average ROA is 7.6%, with top quartile Consortium companies exceeding 11%. Copyright 2009 Supply Chain Consortium. All rights reserved. 6

7 Operating Metrics Total Inventory Turnover Apparel, Fabric and Accessories Automotive, Truck and Vehicles Hardware and Home Improvement Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/ Appliances Total Inventory Turnover Total inventory turnover is calculated by (COGS/average inventory dollars). There is significant variability in inventory turns across industries and among companies as businesses strive for the right level of inventory to provide the best level of customer responsiveness. Consortium manufacturing companies have a slightly higher total inventory turns value of 8.7 turns, while Consortium retail companies have 7.3 turns. Copyright 2009 Supply Chain Consortium. All rights reserved. 7

8 Operating Metrics Days Payable Outstanding and Days Sales Outstanding Apparel, Fabric and Accessories Automotive, Truck and Vehicles Days Payable Outstanding Days Sales Outstanding Days payable outstanding is the payment cycle, while days sales outstanding is the collection time period. Beauty, Health and Wellness Department Store and Discount Overall, average days payable outstanding is 63.6, but top quartile companies generally pay within 82.8 days. Hardware and Home Improvement Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/ Appliances The average days of sales outstanding is Top quartile companies usually collect in 12.3 days. Copyright 2009 Supply Chain Consortium. All rights reserved. 8

9 Liquidity Metric Current Ratio Apparel, Fabric and Accessories Automotive, Truck and Vehicles Hardware and Home Improvement Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/Appliances Current Ratio The current ratio compares a firm's current assets to its current liabilities, so it is a measure of the short-term liquidity of a company. A ratio of 2.0 indicates a company has two times more assets than liabilities. Again, the best comparisons are within a given industry. Consortium averages show most participants assets exceed their liabilities, but many do not reach the current ratio standard of 2.0. Copyright 2009 Supply Chain Consortium. All rights reserved. 9

10 Valuation Metric Price/Sales Ratio (P/S Ratio) Apparel, Fabric and Accessories Automotive, Truck and Vehicles Hardware and Home Improvement Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/Appliances Price/Sales Ratio P/S ratio can be used to determine the value of a stock relative to its past performance. It may also be used to determine relative valuation (or current worth) of a sector or the market as a whole. P/S ratio is calculated by (price per share/sales per share) Consortium manufacturing companies have an average P/S ratio of 1.4, while the retail companies have an average of 0.5. Copyright 2009 Supply Chain Consortium. All rights reserved. 10

11 Valuation Metric Price/Earnings Ratio (P/E Ratio) Apparel, Fabric and Accessories Automotive, Truck and Vehicles Hardware and Home Improvement Hobby, Toys, Arts, Crafts and Sporting Goods Home Products/Furniture/Appliances Price/Earnings Ratio (Average) Average P/E Ratio The P/E ratio is a measure of the price of the stock for each dollar of earnings. The higher the P/E ratio, the more investors are paying per unit of earnings. Since many market variables impact this ratio, care must be exercised in direct comparison of P/E ratios across industries or segments. Generally, P/E ratios in the range of 10 to 25 are considered normal. Copyright 2009 Supply Chain Consortium. All rights reserved. 11

12 Discussion Points Group Open Discussion Questions What other financial metrics do you monitor and track as critical to supply chain operations (i.e., days working capital, gross operating margin, free cash flow)? Where is the greatest opportunity for you in the supply chain to impact your company s overall financial performance? How informed is your team on the key financial drivers of the company versus the supply chain? Have decisions concerning outsourcing operations and supply chain functions been made with an eye toward financial metrics improvement? Copyright 2009 Supply Chain Consortium. All rights reserved. 12

BSE-Sofia AD. Methodology for Calculation of Financial Ratios

BSE-Sofia AD. Methodology for Calculation of Financial Ratios BSE-Sofia AD Methodology for Calculation of Financial Ratios FINANCIAL RATIOS BSE-Sofia calculates the following financial ratios for the companies listed on BSE-Sofia markets: 1. Current Ratio; 2. Asset