Retailer's Financial Dictionary
Key Terms and Definitions
Money owed to a creditor, generally an open account. Usually your vendors or suppliers for your goods.
Sales of goods or services not yet collected. In other words, money owed to you by your customer after they have taken possession of the goods or you have delivered your services.
One of two types of accounting methods (cash and accrual). When using accrual basis for your accounting, sales are reported on the income statement for the period (month) when they were earned (regardless of when it is collected), and expenses reported in the period when they occur (regardless of when you paid the bill).
Expenses which have been incurred but have not been paid. An example would be payroll.
Salaries, wages, benefits, professional fees, vehicles and all other general and administrative expenses.
Any owned physical object (tangible) or right (intangible) having a monetary value. It's normally related in terms of cost (or depreciated cost).
The portion of the financial statement which shows the financial health of a business during a selected period. It shows assets, liabilities, and shareholder's equity, and always balances according to the formula Assets = Liabilities + Equity.
Usually expressed as the actual cost of the total inventory on hand at the beginning of an accounting period. It is the same number as the ending inventory for the previous period.
The most important way to manage a small business, cash flow reflects the flow of funds into and out of a business. The better your cash flow, the better able to pay expenses and pay down debt
Cash Flow Budget
A projection of cash receipts and cash expenses for a period of time into the future, usually done on a monthly basis.
Cost of Goods Sold
The cost of your inventory (goods) calculated by adding the opening inventory to the purchases at cost, minus the closing inventory at cost. This calculation may include markdowns or freight.
Assets which are expected to convert to cash usually within one year. Includes cash on hand, accounts receivable, and current inventory.
Liabilities which are due to be paid within one operating cycle (usually one year). Includes accounts payable, notes or bank loans payable, accrued expenses and current portion of long-term debt.
Special merchandise payment terms which extend the standard due date.
The decline in value of a fixed asset due to wear, tear and/or obsolescence. For example, the value of your POS system in your store will decline as it ages. By depreciating the asset, you are maintaining a more accurate view of the asset on your books.
Balance sheet category listing the shareholder's share of the company; also referred to as "net worth". It is calculated as total assets minus total liabilities.
The balance sheet and the profit and loss statement are generally spoken of as the financial statement. These reports reflect both the current financial status at the end of the accounting period and the change in financial status during the accounting period.
Assets which are not bought to be sold or easily converted to cash within one year. Examples of these items would Include signage, furniture, fixtures, POS equipment, leasehold improvements, or delivery vehicles.
Sales minus the cost of goods sold. This can be calculated as a percentage or in dollars. Dollars is great for knowing the total money yielded by the product category in your store whereas percentage is great when you are comparing categories within the store.
Gross Margin Percent
Gross Margin dollars divided by Sales. An easier way to manage since it is in % versus dollars.
G.M.R.O.I. - Gross Margin Return on Inventory Investment
This calculation measures your inventory's effectiveness by comparing how much is returned in gross margin dollars for each dollar spent in inventory. It is the gross margin percent x the sales / by average inventory cost. It is especially useful when comparing one merchandise category against another.
Similar to gross margin, its the amount of money remaining after cost of goods sold is subtracted from your sales. Generally, this calculation includes total COGS so it has freight and markdowns and shrinkage included. It is a high-level view of your business health when comparing month to month or year over year.
The portion of the financial statement which shows the performance of a business over a period of time. It is normally called the P&L (profit and loss) Statement
The amount added to the cost of new merchandise to arrive at the initial retail price.For example, Cost = $50 and Retail Price = $100 means IMU is $50. Can also be related as a %.
Ratio measuring how often your entire inventory is sold and replaced within a given period of time. It is calculated as sales / average inventory (when you are using retail price) or COGS / average inventory (when you are using cost) Varies greatly by category and merchandise. Best to compare to others in your same business.
A term referring to an Initial Markup (IMU) of 50%.
Balance sheet category listing of debts, everything which is owed by the business.
Liabilities which are due to be paid more than one year from now.
A reduction in the retail price of merchandise. For example, if you have to sell the merchandise for less than you originally listed it to get rid of the inventory. For comparative purposes, markdowns are usually related to the percentage of net sales.
The difference between the landed cost of a product and its selling price.
Net Operating Income
Net sales minus net cost of goods sold minus operating expenses. Often confused, this is not the same as net profit (see below)
Normally the last line on an income statement (P&L) it shows gross profit from sales minus all expenses (operating expenses, taxes, depreciation and withdrawals.)
The difference between the total value of the assets minus the liabilities.
Refers to the short-term or long-term debts of a business and does not include accounts payable.
Includes expenses for store including common area maintenance (CAM), repairs, rent, and utilities.
An inventory purchasing plan based on anticipated sales and desired inventory turnover rate for various categories of merchandise, departments or entire operations.
Non-merchandise expenses incurred by a business; may be generally categorized as selling expenses, occupancy expenses, administrative expenses, and depreciation.
The revenue minus all related costs.
Profit Before Taxes Percent
The financial ratio which indicates the percent of original sales dollars remaining after all expenses are recognized. It is calculated as profit before your taxes/sales.
Profit and Loss Statement
Commonly referred to as the P&L, it is the portion of the financial statement that indicates the operating results for a given period of time. This is also referred to as the income statement.
A detailed analysis showing the projected financial performance as a result of a business plan. Required by all banks when applying for a loan.
The study of relationships between different parts of a company's financial data. Used to pinpoint a company's financial strengths and weaknesses.
Return on Total Assets
Calculated as net profit before taxes / total assets. It measures profit as a percentage of total assets.
A calculation relating the expenses related to selling your merchandise and not the COGS themselves. It includes compensation (salaries, bonuses or commissions), related payroll taxes and employee benefits. It also should include advertising and marketing expenses.
The difference between the amount of inventory shown on the books and the actual physical inventory when counted. This will also reflect theft. It is best to compare to other stores in your same category. The lower the better.
The amount of money which may be available in order to meet current debt obligations when they become due. This is calculated by taking your current assets and subtracting your current liabilities.