MKT 174 STUDY GUIDE
CHAPTER 12 – OPERATIONS MANAGEMENT: FINANCIAL DIMENSIONS
A profit & loss statement consists of these major components:
oNet sales, p. 356 – “…revenues received by a retailer during a given period after
deducting customer returns, markdowns, & employee discounts.”
oCost of goods sold, p. 356 – “…amount a retailer pays to acquire the
merchandise sold during a given period – based on purchase prices and freight
charges, less all discounts (such as quantity, cash, and promotion).”
oGross profit (margin), p. 356 – “…difference between net sales and the cost of
goods sold.”
oOperating expenses, p. 356 – “…cost of running a retail business.”
oTaxes, p. 356 – “…portion of revenues turned over to the federal, state, and/or
local government.”
oNet profit after taxes, p. 356 – “…profit earned after all costs and taxes have
been deducted.”
Balance sheet, p. 357 – “…itemizes a retailer’s assets, liabilities, and net worth at a
particular time – based on the accounting principle:
assets = liabilities + net worth (owner’s equity).”
Assets, p. 357 – “…any items a retailer owns with a monetary value.”
oCurrent assets – cash on hand (or in the bank) and items readily converted to
cash, such as inventory on hand and accounts receivable (amounts owed to the
firm).”
oFixed assets – property, buildings, (a store, warehouse,), fixtures, and equipment
such as cash registers and trucks…used for a long period.”
Hidden assets, p. 358 – “…used to describe depreciated assets, such as buildings and
warehouses that are noted on a retail balance sheet at low values relative to their
actual worth.”
Liabilities, p. 358 – “…financial obligations a retailer incurs in operating a business.”
oCurrent liabilities – payroll expenses payable, taxes payable, accounts payable,
(amounts owed to suppliers), and short-term loans.
oFixed liabilities – mortgages and short-term loans…generally repaid over several
years.
Net worth (owner’s equity), p. 358 – “…computed as assets minus liabilities…
represent the value of a business after deducting all financial obligations.”
Net profit margin, p. 358 – “…a performance measure based on a retailer’s net
profit and net sales.” (see formula on p. 358)
Asset turnover, p. 359 – “…a performance measure based on a retailer’s net sales
and total assets.” (see formula on p. 359)
1
