Comparative Business Analysis for Retail Furniture Operations

Sample Furniture

Profit Maximization Analysis

12/31/2008

PROFITconsulting. 422 E. Vermijo, Suite 100. Colorado Springs, CO 80903Tel: 800-888-5564 or 719-332-9824; Fax:866-221-5337;

e-mail:[email protected]

mailto:e-mail:[email protected]

Table of Contents Page A. Financial Analysis – Forward…..………………………………….………3

Financial Statement, P&L – High Profit Comparison……………...…..….4 Financial Statement, P&L Detail…………………………………………..5 Financial Statement, Balance Sheet – High Profit Comparison ………..…6 GMROI…………………………………………………………………….7 Gross Margin ………………………………………………………………8 Inventory Turnover ………..……………………………………………….9 Sales Per Square Foot………………………………………………………10 Sales Per Employee………………………………………………………...11 Net Income………………………………………………………………….12 Break Even Analysis………………………………………………………..13 Financial Ratios and Sales Metrics………………………………………… 14

B. Inventory – Forward…..…………………………………………………….15 Inventory Blend………………………………………………………….….16 Inventory Aging……………………………………………………………..17 Best Seller In-stock Days……………………………………………………18

Category GMROI……………………………………………………………19 Vendor GMROI……………………………………………………………...20

C. Observations/Recommendations ………………………………………...…21 D. Bibliography…………………………………………………………………22 E. Appendix – Financial Ratio Definitions……………………………………..23

Profit Maximization Analysis CONFIDENTIAL

Sample Furniture

Financial Analysis - Forward

PROFITconsulting, the management consulting department of PROFITsystems, Inc., has developed Profit Maximization Analysis to assist furniture retailers in interpreting their systems’ data. A management consultant analyzes important systems reports, explains the findings, provides recommendations and presents the Profit Management Analysis. Profit Management Analysis graphically portrays key company figures and uses some NHFA data as a comparison point. Some modifications have been made to conform to the typical PROFITprofessional financial presentation. Your results are then tracked on trend lines over time so that we can effectively develop a targeted profitability strategy. We cannot improve what we don’t track! Profit Maximization Analysis is divided into two main sections – Financial Analysis and Inventory Analysis. In the following section, our Financial Analysis displays a macro view of your company. We start with an annualized P&L comparison to High Profit Dealers and Typical Dealers. After the P & L, is a balance sheet comparison with financial ratios. Then we graphically compare your source data with NHFA data and chart your progress on a trend line over time. For your investment productivity, we analyze your GMROI and it’s components, Gross Margin and Inventory turnover. Then we look at efficiency ratios – Sales and Gross Margin per Employee and per Square Foot. Finally we track your annualized Net Income and conduct a Contribution Margin and Break-Even Analysis. Our Inventory Analysis section is more of a micro analysis in that we analyze productivity within your investment. The critical components of Inventory Blend, Inventory Aging, Category and Vendor GMROI are tracked. Profit Maximization Analysis is not just a report for your review. It is a system that goes hand-in-hand with the services of our management consultants. It is a tool that we use to help you chart a path towards double digit profits!

Prepared by PROFITconsulting Page 3 Copyright PROFITsystems, Inc.


Financial Statement - P & L - (Annualized) Sample FurnitureComparison with a High Profit Dealer

Initial % of Current % of % High % of Difference Average % of Difference

9/30/2008 Sales 12/31/2008 Sales Change Profit Sales HP & Current Sales Average-Current

Sales $4,000,000 100% $4,200,000 100% 5.00% $4,200,000 100.00% $4,200,000 100.00% Cost of Goods Sold 2,200,000 55.00% 2,352,000 56.00% 1. % 2,289,000 54.50% 1.5 % 2,356,200 56.10% - .1 %Gross Margin $1,800,000 45.00% $1,848,000 44.00% - 1. % $1,911,000 45.50% - 1.5 % $1,843,800 43.90% .1 %

Cash Discounts & Rebates 13,333 0.33% 14,000 0.33% 0.00% 16,800 0.40% - .07 % 16,800 0.40% - .07 %Gross Realized Margin $1,813,333 45.33% $1,862,000 44.33% - 1. % $1,927,800 45.90% - 1.57 % $1,860,600 44.30% .03 %

Operating Expenses

Administrative Expense $360,000 9.00% $400,000 9.52% .52 % $508,200 12.10% - 2.58 % $562,800 13.40% - 3.88 %Occupany Expense 240,000 6.00% 245,000 5.83% - .17 % 319,200 7.60% - 1.77 % $310,800 7.40% - 1.57 %Advertising Expense 220,000 5.50% 210,000 5.00% - .5 % 235,200 5.60% - .6 % $247,800 5.90% - .9 %Selling Expense 360,000 9.00% 365,000 8.69% - .31 % 348,600 8.30% .39 % $344,400 8.20% .49 %Customer Service Expense 40,000 1.00% 41,000 0.98% - .02 % 33,600 0.80% .18 % $37,800 0.90% .08 %Delivery Expense 60,000 1.50% 63,000 1.50% . % 12,600 0.30% 1.2 % $54,600 1.30% .2 %Warehouse Expense 120,000 3.00% 120,000 2.86% - .14 % 134,400 3.20% - .34 % $126,000 3.00% - .14 %Total Operating Expenses $1,400,000 35.00% $1,444,000 34.38% - .62 % $1,591,800 37.90% - 3.52 % $1,684,200 40.10% - 5.72 %

Net Operating Income $413,333 10.33% $418,000 9.95% - .38 % $336,000 8.00% 1.95 % $176,400 4.20% 5.75 %

Other Income & ExpenseOther Income $8,000 0.20% $7,000 0.17% - .03 % $4,200 0.10% .07 % $4,200 0.10% .07 %Other Expenses -80,000 -2.00% -80,000 -1.90% .1 % -75,600 -1.80% - .1 % -$88,200 -2.10% .2 %Interest Expense -16,000 -0.40% -16,000 -0.38% .02 % -16,800 -0.40% .02 % -$16,800 -0.40% .02 %Total Other Income & Expense -$88,000 -2.20% -$89,000 -2.12% .08 % -$88,200 -2.10% - .02 % -$100,800 -2.40% .28 %

Net Income Before Income Taxes $325,333 8.13% $329,000 7.83% - .3 % $247,800 5.90% 1.93 % $75,600 1.80% 6.03 %

$ Value of Change - $ 3667 Minimum Opportunity -$81,200 Opportunity at 10.0% $91,000 Between initial and current values Difference between current value 10.0 % is High Range Profitability

and High Profit Dealer

Earnings before Interest, Taxes, Depreciation & AmortizationNet Income Before Income Taxes $325,333 8.13% $329,000 7.83% - .3 % $247,800 5.90% 1.93 % $75,600 1.80% 6.03 %Interest Expense 16,000 0.40% 16,000 0.38% - .02 % 16,800 0.40% - .02 % $16,800 0.40% - .02 %Depreciation & Amortization 26,667 0.67% 26,666 0.63% - .03 % 33,600 0.80% - .17 % $33,600 0.80% - .17 %EBITDA $368,000 9.20% $371,666 8.85% - .35 % $298,200 7.10% 1.75 % $126,000 3.00% 5.85 %



Financial Statement - P & L Detail - (Annualized) Sample FurnitureComparison with High Profit Dealer

Initial % of Current % of % High % of Difference Average % of Difference

9/30/2008 Sales 12/31/2008 Sales Change Profit Sales HP & Current Sales Average-Current

Payroll Expense Administrative Wages & Bonuses $120,000 3.00% $122,000 2.90% - .1 % $260,400 6.20% - 3.3 % $273,000 6.50% - 3.6 %Occupancy Wages & Bonuses 0 0.00% 0 0.00% . % 0 0.00% . % 0 0.00% . %Advertising Wages & Bonuses 0 0.00% 0 0.00% . % 0 0.00% . % 0 0.00% . %Sales Salaries, Comm & Bonus 326,667 8.17% 315,000 7.50% - .67 % 344,400 8.20% - .7 % 344,400 8.20% - .7 %Customer Service Wages & Bonuses 32,000 0.80% 32,000 0.76% - .04 % 54,600 1.30% - .54 % 46,200 1.10% - .34 %Delivery Wages & Bonuses 53,333 1.33% 54,000 1.29% - .05 % 96,600 2.30% - 1.01 % 105,000 2.50% - 1.21 %Warehouse Wages & Bonuses 56,000 1.40% 56,000 1.33% - .07 % 96,600 2.30% - .97 % 109,200 2.60% - 1.27 %Other Wages & Bonuses 0 0.00% 0 0.00% . % 4,200 0.10% - .1 % 21,000 0.50% - .5 %Owner's Salaries & Bonuses 100,000 2.50% 100,000 2.38% - .12 % 0 0.00% 2.38 % 0 0.00% 2.38 %Total Gross Wage Expense $688,000 17.20% $679,000 16.17% - 1.03 % $856,800 20.40% - 4.23 % $898,800 21.40% - 5.23 %

`Payroll Taxes (Fica, Medicare, Unemployment) $69,333 1.73% $68,000 1.62% - .11 % $58,800 1.40% .22 % $67,200 1.60% .02 %Workers' Compensation 24,000 0.60% 24,000 0.57% - .03 % 0 0.00% .57 % 0 .57 %Group Insurance (Hospital, Medical, Etc.) 33,333 0.83% 34,000 0.81% - .02 % 37,800 0.90% - .09 % 46,200 1.10% - .29 %Benefit Plans (401K, Pensions, Profit Sharing) 16,000 0.40% 16,000 0.38% - .02 % 12,600 0.30% .08 % 8,400 0.20% .18 %Total Payroll Burden $142,667 3.57% $142,000 3.38% - .19 % $109,200 2.60% .78 % $121,800 2.90% .48 %

Total Payroll Expense $830,667 20.77% $821,000 19.55% - 1.22 % $966,000 23.00% - 3.45 % $1,020,600 24.30% - 4.75 %

Payroll Burden as % of Total Gross Wage Exp. 20.74% 20.91% 12.75% 13.55%

Advertising Expenditure by TypeDirect Mail 20.0% 20.0% 18.1% 14.9%Internet/Web 18.2% 19.0% 0.5% 0.4%Magazines & Circulars 12.1% 12.4% 10.3% 9.1%Newspaper 18.2% 18.9% 30.3% 28.2%Radio 4.8% 5.7% 4.9% 6.8%Television 21.8% 20.0% 35.6% 35.6%Yellow Pages 1.2% 1.1% 1.1% 0.8%Other 10.9% 11.4% 12.1% 13.8%Co-op Advertising -7.3% -8.6% -12.9% -9.6%Total Advertisng Expense 100.0% 100.0% 100.0% 100.0%

`



Financial Statement - Balance Sheet Sample Furniture 12/31/2008Comparison with High Profit Dealer Initial % of Current % of % High % Difference Typical % Difference

9/30/2008 Assets/Liab. 12/31/2008 Assets/Liab. Change Profit Assets/Liab. HP & Current Assets/Liab. Average AssetsCash & Marketable Securities 50,000$ 5.10% 70,000$ 7.30% 2.20% 176,456 18.40% -11.10% 82,474 8.60% -1.30%Accounts Receivable 35,000$ 3.57% 25,000$ 2.61% -0.96% 54,663 5.70% -3.09% 40,278 4.20% -1.59%Inventory 750,000$ 76.53% 725,000$ 75.60% -0.93% 582,113 60.70% 14.90% 641,571 66.90% 8.70%Other Current Assets 5,000$ 0.51% 4,000$ 0.42% -0.09% 20,139 2.10% -1.68% 16,303 1.70% -1.28%Total Current Assets 840,000$ 85.71% 824,000$ 85.92% 0.21% 833,371 86.90% -0.98% 780,626 81.40% 4.52%Fixed Assets, net 125,000$ 12.76% 120,000$ 12.51% -0.24% 111,244 11.60% 0.91% 148,645 15.50% -2.99%Other Assets 15,000$ 1.53% 15,000$ 1.56% 0.03% 14,385 1.50% 0.06% 29,729 3.10% -1.54%Total Assets 980,000$ 100% 959,000$ 100% 0.00% 959,000 100% 0.00% 959,000 100% 0.00%

Liabilities and Net WorthAccounts Payable 200,000$ 20.41% 175,000$ 18.25% -2.16% 116,039 12.10% 6.15% 112,203 11.70% 6.55%Customer Deposits 100,000$ 10.20% 85,000$ 8.86% -1.34% 94,941 9.90% -1.04% 94,941 9.90% -1.04%Notes Payable - Current 130,000$ 13.27% 125,000$ 13.03% -0.23% 59,458 6.20% 6.83% 73,843 7.70% 5.33%Other Current Liabilities 30,000$ 3.06% 40,000$ 4.17% 1.11% 115,080 12.00% -7.83% 125,629 13.10% -8.93%Total Current Liabilities 460,000$ 46.94% 425,000$ 44.32% -2.62% 385,518 40.20% 4.12% 406,616 42.40% 1.92%Long Term Liabilities 50,000$ 5.10% 50,000$ 5.21% 0.11% 221,529 23.10% -17.89% 156,317 16.30% -11.09%

Net Worth or Owners Equity 470,000$ 47.96% 484,000$ 50.47% 2.51% 351,953 36.70% 13.77% 396,067 41.30% 9.17%

Total Liabilities & Net Worth 980,000$ 100% 959,000$ 100% 0.00% 959,000 100% 0.00% 959,000 100% 0.00%

`



Sample FurnitureGMROI

Dealer Type GMROI

Sample Furniture 2.55NHFA High Profit 2.47NHFA Average 2.28

AnalysisCongratulations! Your GMROI is Greater than the High Profit Dealer.

OpportunityCongratulations! You have $0.08 more GMROI than the High Profit Dealer.

DefinitionGMROI is defined as the number of dollars of gross margin realized annually per dollar of investment. It is the primary indicator of the productivity of your inventory investment. It takes into account both gross margin realized and inventory turns.

$2.55

$2.47

$2.28

2.10

2.15

2.20

2.25

2.30

2.35

2.40

2.45

2.50

2.55

2.60

Sample Furniture NHFA High Profit NHFA AverageDealer Type

GM

RO

I

Progress Tracker

2.002.102.202.302.402.502.60

January

AprilMay

June

July

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September

October

November

December

Averag

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High Profit



Sample FurnitureGross Margin

Dealer Type Gross Margin

Sample Furniture 44.00%High Profit 45.50%Average 43.90%

AnalysisYour Gross Margin is Greater than the Average Dealer, but Less than the High Profit Dealer.

OpportunityYou have 1.5% less Gross Margin than the High Profit Dealer.

DefinitionGross Margin is what you are left with after the sale of goods. It is calculated by subtracting the cost of goodsfrom the sale amount. It is a measure of your efficiency of turning inventory purchases into income.

44.00%

45.50%

43.90%

43.00%

43.50%

44.00%

44.50%

45.00%

45.50%

46.00%

Sample Furniture High Profit AverageDealer Type

Gro

ss M

argi

n

Progress Tracker

40.00%

41.00%

42.00%

43.00%

44.00%

45.00%

46.00%

January April

MayJu

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August

September

October

November

December

Avera

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High Profit



Sample FurnitureInventory Turnover

Dealer Type Turns

Sample Furniture 3.24NHFA High Profit 3.00NHFA Average 2.80

AnalysisCongratulations! Your Inventory Turns are Greater than the High Profit Dealer.

OpportunityCongratulations! You have 0.24 more turns than the High Profit Dealer.

DefinitionInventory turnover is the number of times you sell your current value of inventory. It is the ratio of the cost of the goods you sell to your inventory value.

3.24

3.00

2.80

2.50

2.60

2.70

2.80

2.90

3.00

3.10

3.20

3.30


Inve

ntor

y Tu

rnov

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Progress Tracker

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

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Sample Furniture

Sales Per Square Foot - Selling Space

Dealer Type Sales/Sq. Ft. GM/Sq. Ft. 25000 25000Sample Furniture 168.00$ 73.92$ NHFA High Profit 147.00$ 60.00$ NHFA Average 146.00$ 61.00$

AnalysisCongratulations! Your Sales per Square Foot are Greater than the High Profit Dealer.Congratulations! Gross Margin per Square Foot is Greater than the High Profit Dealer.

OpportunityCongratulations! You have $21.00 more Sales/Square Foot than the High Profit Dealer.Congratulations! You have $13.92 more GM/Square Foot than the High Profit Dealer.

DefinitionSales and gross margin per square foot are indicators of the efficient use of sales floor space. The higher your sales per square foot the greater are your turns.

$168.00

$147.00 $146.00

$73.92$60.00 $61.00

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00


Dol

lars

Per

Squ

are

Foot

Sales/Sq. Ft. GM/Sq. Ft.

Progress Tracker - Sales/Squ.Ft.

135.00

140.00

145.00

150.00

155.00

160.00

165.00

170.00

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Sample Furniture

Sales and Gross Margin per Employee

Dealer Type Sales/Emp. GM/Emp.21 21

Sample Furniture 200,000$ 88,000$ High Profit 194,401$ 87,814$ Average 194,542$ 86,598$

AnalysisCongratulations! Your Sales per Employee are Greater than the High Profit Dealer.Congratulations! Gross Margin per Employee is Greater than the High Profit Dealer.

OpportunityCongratulations! You have $5,599 more Sales/Employee than the High Profit Dealer.Congratulations! You have $186.00 more GM/Employee than the High Profit Dealer.

DefinitionSales and Gross Margin per employee are measures of employee productivity. They allow us to gauge your current staffing levels and their overall output. High marks here mean solid overall human resource levels.

$200,000 $194,401 $194,542

$88,000 $87,814 $86,598

$-

$50,000

$100,000

$150,000

$200,000

$250,000

Sample Furniture High Profit AverageDealer Type

Dol

lars

Per

Em

ploy

ee

Sales/Emp. GM/Emp.

Progress Tracker - Sales/Emp.

$170,000

$175,000

$180,000

$185,000

$190,000

$195,000

$200,000

$205,000

Janua

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MayJu

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Sample FurnitureNet Income

Dealer Type COGS Total Net IncomeExpenses

Sample Furniture 56.00% 36.17% 7.83%NHFA High Profit 54.50% 39.60% 5.90%NHFA Average 56.10% 42.10% 1.80%

AnalysisCongratulations! Your Net Income is Greater than the High Profit Dealer.

OpportunityCongratulations! You have 1.93% more Net Income than the High Profit Dealer.The difference from your Net Income to a High Profit Dealer is $-81,200 per year.DefinitionNet Income (or loss) is the profit that you retain after all expenses are deducted. It is your bottom-line before year-end taxation. Tracking and improving this number should be your ultimate goal.

56.00% 54.50% 56.10%

36.17% 39.60% 42.10%

7.83% 5.90% 1.80%

0%10%20%30%40%50%60%70%80%90%

100%


Perc

ent o

f Sal

es

COGS Total Net Income

Progress Tracker

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%

Janua

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MayJu

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Sample FurnitureBreak-Even Analysis

Sample Furniture % High Profit % Average %Sales $4,200,000 100% $4,200,000 100% $4,200,000 100%Cost of Goods $2,352,000 56.00% $2,289,000 54.50% $2,356,200 56.10%Gross Margin $1,848,000 44.00% $1,911,000 45.50% $1,843,800 43.90%Variable Expenses $569,450 13.56% $547,890 13.05% $586,110 13.96%Fixed Expenses $949,550 22.61% $1,115,310 26.56% $1,182,090 28.15%Contribution Margin 30.44% 32.46% 29.95%Net Profit $329,000 7.83% $247,800 5.90% $75,600 1.80%Break Even Sales $3,119,244 $3,436,481 $3,947,537BE Sales/Month $259,937 $286,373 $328,961

AnalysisCongratulations! Your Break Even Sales are Less than the High Profit Dealer.

OpportunityCongratulations! Your Break Even Sales/Month are $26,436 less than the High Profit Dealer.

DefinitionFirst you "Break-Even", then you make a profit! Your breakeven point is the volume of sales needed to cover all of your fixed costs.The Contribution Margin is the percentage of each sales dollar that goes to Fixed Expenses, before the break-even point, and thepercentage of each sales dollar, which goes to Profit, after the break-even point.

Progress Tracker

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Janu

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MayJu

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Augus

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Septem

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Octobe

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Novem

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Decem

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Avera

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High Prof

it

$-

$350,000

$259,937

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

Sales / Month Break Even Sales / Month



Sample Furniture

Financial Ratios and Sales Metrics

Financial Ratios Sample Furniture High Profit AverageDealer Dealer

Profit Margin 7.83% 5.90% 1.80%

Asset Turnover 4.38 3.20 2.90

Return on Assets 34.31% 19.60% 3.50%

Return on Net Worth 67.98% 44.90% 7.40%

Current Ratio 1.94 2.20 2.00

Quick Ratio 0.22 0.50 0.40

Accounts Payable to Inventory 24.14% 21.30% 21.70%

Debt To Equity 0.98 1.40 0.60

Cash to Current Liabilities 16.47% 26.60% 14.30%

Sales Metrics Sample Furniture High Profit AverageDealer Dealer

Average Sale $1,175 $1,150 $1,100

Close Ratio 25.00% 30.00% 30.00%



Sample Furniture

Inventory Analysis - Forward

The second section of Profit Maximization Analysis focuses on looking within your primary investment – Inventory. We analyze four critical areas – Inventory Mix, Inventory Age, Category GMROI and Vendor GMROI. First, Inventory Mix is used to display your current disproportionality between item sku’s, inventory dollars invested and gross margin dollars returned. A disproportionate amount of gross margin dollars comes from a small number of sku’s where you have a low amount of dollars invested – these are your winners. And conversely a large amount of items produce 0 gross margin dollars where you have a large amount of money invested – your Dogs. Second, we analyze inventory age to identify your dogs within time periods. The purpose of this is so that we can develop a strategy and focus on areas of your inventory that need immediate action. We need to set a goal to aspire to the “efficiency model” – accomplishing this will improve cash flow and free up investment dollars. Third, we compare your Category GMROI to that of similar NHFA High Profit Dealer categories. From this, we can identify which areas are underperforming and identify trends so that potential problem areas are caught sooner. Lastly, we analyze the GMROI performance of your top 10 vendors. Most vendors will contain some best sellers, also-rans, and many dogs. The trick is to know your best-sellers and keep them in stock at an appropriate level. And as mentioned, know your dogs and develop a plan to move them out.

Prepared by PROFITconsulting Page 15 Copyright PROFITconsulting, Inc.


Sample FurnitureInventory Blend

Sku #'s Item $ % of Total GM"Best Sellers" 800 $370,000 80%"Also Rans" 4700 $175,000 20%"Dogs" 2000 $180,000 0%Totals 7500 725,000$ 100%

AnalysisCongratulations! Your Inventory to Sales Ratio is Less than the High Profit Dealer. OpportunityCongratulations! Your Inventory to Sales Ratio is 1.94% less than the High Profit Dealer.

DefinitionTypically 80% of Gross Margin dollars are generated by 20% of the items. "Dogs" are items that produce 0 or negative Gross Margin. Item in between are your "Also-Rans." Your Inventory to Sales Ratio shows the the percentageamount of inventory that you are carrying to support your current level of sale. 15% should be a target for a High Profit model.

2000

4700

800

$180,000

$175,000

$370,000

0%

20%

80%

0%10%20%30%40%50%60%70%80%90%

100%

Sku #'s Item $ GM %

"Dogs" "Also Rans" "Best Sellers"

17.3%

19.2%

20.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

Sample Furniture High Profit Average

Inventory to Sales

Progress Tracker

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

20.0%

20.5%

January April May June July August September October November December Average High Profit



Sample FurnitureInventory Aging

Aging Periods Discount % Period 1 60 10

Period 2 120 20Period 3 180 30Period 4 240 40Period 5 300 50Period 6 360 60

AnalysisCongratulations! You are above the "Efficiency" Model with regards to total aged merchandise.

OpportunityYou have $174,000 in merchandise that is over 60 days old. $36,250 in merchandise that is over 240 days old.$101,500 in merchandise that is over 120 days old. $21,750 in merchandise that is over 300 days old.$65,250 in merchandise that is over 180 days old. $14,500 in merchandise that is over 360 days old.DefinitionInventory Aging is another important tool of Dynamic Inventory Management. It allows us to track and identify your slow-moving merchandise - "Your Dogs." An efficient operation will have at least 75% of its inventory less than 60 days old.Typical furniture aging periods are every 60 days. So Period 6 inventory is actually over 1 year old!

76%75%

10%9%5%6%

4%4%

2%

3% 1%2% 2%1%0%

10%20%30%40%50%60%70%80%

CurrentPeriod1

Period2

Period3

Period4

Period5

Period6

Aging Period

Sample Furniture "Efficiency Model"

Progress Tracker - % No Aging

64%

66%

68%

70%

72%

74%

76%

78%

Janu

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Febru

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March April

MayJu

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Septe

mber

Octobe

r

Novem

ber

Decem

ber



Sample FurnitureBest Seller In-stock Days

Company Sample Furniture 86%

Best Performing 95%Average Stores 85%

AnalysisYour Best Seller In-stock days are Less than the performing stores, but Greater than the average store.

OpportunityYou have 9% less Best Seller In-stock Days than the best performing stores..

DefinitionBest sellers produce a disproportionate amount of gross margin dollars. The importance of keeping them in-stockcannot be understated. Companies in over-inventoried situations have more stock-outs due to inventory carryingcosts and cash flow. Companies who are purchasing their best sellers properly and carry a proper level of inventoryhave higher best seller in-stock days and generate greater revenue as a result.

86%

95%

85%

80%

82%

84%

86%

88%

90%

92%

94%

96%

Sample Furniture Best PerformingStores

Average Stores

Progress Tracker-Best Seller In-stock %

70%

75%

80%

85%

90%

95%

100%

Janu

aryApri

lMay

June Ju

ly

August

September

October

Novembe

r

Decembe

r

Average

Best P

erform

ing



Sample Furniture

Inventory Analysis - Category GMROI

AnalysisCategories below your average: Bedroom Dining Room Kitchen/Dinette Occasional Home Office Lamps Accessories Curios Juvenile OpportunityGMROI - Difference between High Profit and Current Motion = $0.90 Recliners = $0.47 Kitchen/Dinette = $0.17 , Entertainment = $0.30 Juvenile = $0.14 DefinitionIt is important to track GMROI by merchandise category as well as overall so that you can identify your strengths and weaknessesand take appropriate action. The opportunity shows how close your categories are to the High Profit Dealer Category, if it is lower.

$3.30 $2.90 $3.00 $2.60 $2.50 $2.20 $2.40$1.70

$2.40 $2.30

$4.20

$0.90 $0.70$1.50

$2.40

$0.00 $0.00 $0.00 $0.00 $0.00

$2.55

0.000.501.001.502.002.503.003.504.004.50

Upholstered

Leather

Motion

Recliners

Bedroom

Dining R

oom

Kitchen/D

inette

Occas

ional

Home Offic

e

Entertainmen

t

Bedding

Lamps

Access

ories

Curios

Juve

nile

GMROI - Finan...

NHFA - High Profit

$3.10$2.53

$3.90

$3.07$2.49

$1.77

$2.57

$1.70 $1.88$2.60

$3.77

$0.86 $0.62$1.24

$2.54

$0.00

$2.47

0.000.501.001.502.002.503.003.504.004.50

Upholst

ered

Leath

er

Motion

Recline

rs

Bedroom

Dining

Roo

m

Kitchen

/Dinett

e

Occas

ional

Home Offic

e

Entertai

nment

Bedding

Lamps

Access

ories

Curios

Juve

nile

Total G

MROI



Sample Furniture

Inventory Analysis - Vendor GMROI

AnalysisYour best performing vendors are: VENDOR 1 VENDOR 2 VENDOR 3 VENDOR 4 Opportunity VENDOR 6 = $0.02 VENDOR 7 = $0.47 VENDOR 8 = $0.57 VENDOR 9 = $0.67 VENDOR 10 = $0.97DefinitionLike category GMROI analysis, Vendor GMROI analysis allows us to track performance and set goals. With this informationwe can develop a focused strategy to ultimately increase your bottom-line.The opportunity shows how close your vendors are to the High Profit Dealer Overall GMROI, if it is lower.

$4.25$3.90

$3.50

$2.85$2.55 $2.50 $2.45

$2.00 $1.90 $1.80$1.50

$-$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50

VENDOR 1 VENDOR 2 VENDOR 3 VENDOR 4 GMROI -Financials

VENDOR 5 VENDOR 6 VENDOR 7 VENDOR 8 VENDOR 9 VENDOR 10



Sample Furniture

Observations / Recommendations


D. Biblography

National Home Furnishings AssociationReference to 2008 Retail Performance Report (2007) Datawww.NHFA.org

Page 22

http://www.NHFA.org


E. Appendix - Financial Ratios

Profit Margin: Percentage of net income to sales. Focuses on productivity, gross marginand operating expense control.

Asset Turnover: Reflects the sales your company produces for each dollar invested.

Return on Assets: This measure of performance is an indicator of your company's ability to survive and prosper. It is your profit margin multiplied by your asset turnover. 4-5% is minimum, while 15-20% wouldmake your company one of the top profit producers.

Return on Net Worth: Defines the amount of profit produced per dollar of net worth. 8-10% is necessary for minimum long term survival. 30-40% would make your firm one of the top producers in the industry.

Current Ratio: Your company needs a supply of current funds to be assured of paying your bills whenthey come due. This ratio measures your margin of safety to allow for inevitable unevenness in the flowof funds through your assets and current liability accounts.

Quick Ratio: Your quick assets include cash, market securities, and current accounts receivable. Your quick ratio is a measure of the extent to which liquid resources are available to meet your current obligations.

Accounts Payable to Inventory: The ratio to which your company is financed by your suppliers.

Debt to Equity: Shows the balance that you have between your debt and owner's equity. A mix of$1 debt to $1 equity is usually considered prudent.


Comparative Business Analysis for Retail Furniture Operations

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