THE ROLE OF RATIOS IN RETAIL SECTOR
Aims and objectives of research
Any successful retail owner is evaluating the performance of the retail company, comparing it with retail figures, with the retail industry competitors, with successful retail business from other industries. There is a need to examine retail effectiveness, however, there need to look at more than just easily attainable numbers like sales, profits and total assets, be able to read between the lines of retail financial statements and make the seemingly inconsequential numbers accessible and comprehensible. In the retail sector, ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past retail performances, ratios can be predictive too, and provide lead indications of potential problem areas. Ratio analysis is primarily used to compare retail business financial figures over period of time, method sometimes called trend analysis. Through trend analysis, retailers can identify trends, good and bad, and adjust the retail business practices accordingly (Bernstein and Wild, 2000; Eric Press, 1999).
Retailers can also see how retail ratios stack up against other businesses, both in and out of the industry. If retailers are making comparative analysis of retail company's financial statements over a certain period of time, make an appropriate allowance for any changes in accounting policies that occurred during the same time span (Bernstein and Wild, 2000; Eric Press, 1999). When comparing retail business with others in the industry, allow for any material differences in accounting policies between retail company and industry norms. Different accounting methods can result in a wide variety of reported figures. Determine whether ratios were calculated before or after adjustments were made to the balance sheet or income statement, such as non-recurring items and inventory or pro forma adjustments. In many cases, these adjustments can significantly affect the ratios. Carefully examine any departures from retail industry norms.
Questions
1. What is meant by retailing? How ratios are used and applied into the sector? 2. What are ratios? How can these be manifested in business, in retail industry? 3. What are the types of ratios? How does it work in bringing stable decisions of retail business? 4. What are the roles of ratios in retail business? 5. How ratios are measured? Computed? Why ratios are effectively based on analysis? Discuss 6. Why ratio analysis plays an important role in strategic planning? Explain 7. What is the importance of ratio in retail sector? Cite literature 8. Are there any positive and or negative indicators of ratio and its analysis for the retail sector? 9. Does the role of ratios account to general standing of the retail sector? Does it provide desirable projected areas of the sector within the economy? 10. What are several cases presenting situation of ratio analysis in the retail sector?Ratio analysis is one fundamental tool of financial analysis and financial analysis is in itself an important part of any business planning process as SWOT analysis (strengths, weaknesses, opportunities and threats), the basic tool of analysis strategic plays a crucial role in a business planning process and SWOT analysis, no company would be complete without an analysis of the financial situation. Ratio Analysis is very important part of the overall strategic planning. Ratio of cash flows, relationship between cash flow and outflow. It helps to control the sources and uses of cash and their net effect. This ratio is calculated as percentage and the percentages can be used to balance revenue and expenditure of cash, with the election as lease depending on the order to use the analysis.
References
Leopold Bernstein, John Wild, "Analysis of Financial Statements" (McGraw-Hill, 2000)
Eric Press, "Analyzing Financial Statements" (Lebahar-Friedman, 1999)
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