Montgomery Apparel Company

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1. What are the key productivity ratios for measuring the retailer as a whole, its merchandise management activities, and its store operation activities? Why are these ratios appropriate for one area of the retailer’s operation and inappropriate for others? The key productivity ratios are: Return on Assets (Net Income / Total Assets) which measures a firm's profitability in relation to its total resources. It indicates how well those assets are utilized to generate profit; Receivable Turnover (Sales / Accounts Receivable) which measures how quick those sales on credit are turned around in terms of percentage or number of days (divide the ratio by 360 days); Inventory Turnover (Sales / Inventory) measures how quick inventory is converted into sales percentage wise or number of days (divide the ratio by 360 days); Gross Margin (Revenue minus Cost…show more content…
Gross Margin is also applicable for operations found in the Income Statement but not found on the balance sheet items. 2. Neiman Marcus (a chain of high-service department stores) and Wal-Mart target different customer segments. Which retailer would you expect to have a higher gross margin? Higher expense to sales ratio? Higher inventory turnover? Higher asset turnover? Net profit margin percentage? Why? Neiman Marcus is expected to have a higher gross margin because they rely on lesser number of items to sell than Walmart. They have to have a higher gross margin to cover for operating expenses usually termed as SG&A or selling, general and administrative expenses. Walmart is expected to have a higher expense to sales ratio because they rely on volume to generate profit with small margins. Neiman sells lesser volume but have a lower expense to sales ratio because they have high mark-ups on high-end
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