Retail Key Ratios Benchmarks 



6 Key Ratios

5-Year Trend Charts

54 Retail Segments

 


Have questions about how to read these ratios, or what they really mean? That's why this Retail Benchmarks Resource Center is here! (And free to everyone to use.)


How to Calculate KEY RATIOS - in 12 Seconds Each!

"Cheat Sheet" Tips &
Formulas for Retail Ratios
 

Sit back & watch:
The Retail OWNER'S DASHBOARD 



Online KEY RATIOS CALCULATOR


"How can these benchmark numbers be used?"

  1. For perspective. Calculate these ratios for your own business, and then see how you compare to your retail industry segment.
  2. Use these benchmarks when you are setting your own target ratios for the next year.
  3. You should know that when you are seeking a bank loan for your business, the bankers will look at these industry benchmarks as they assess your store's performance.

Retail Segments

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Find your retail segment below • click its name - the green link - to go to its own page

Furniture & Home Furnishings Stores
Furniture StoresFloor Covering StoresHome Furnishings Stores

Building Material & Garden Equipment & Supplies Dealers
Home CentersPaint & Wallpaper StoresHardware StoresLumber & Building Materials DealersOutdoor Power Equipment StoresNursery, Garden Center & Farm Supply Stores

Food & Beverage Stores
Baked Goods StoresSupermarkets & Grocery StoresConvenience StoresGasoline Stations with Convenience StoresMeat MarketsFruit & Vegetable MarketsFood (Health) Supplement Stores • Candy & Nut StoresBeer, Wine & Liquor Stores

Health & Personal Care Stores
Cosmetics, Beauty Supplies & Perfume StoresPharmacies & Drug StoresOptical Goods Stores

Clothing & Clothing Accessories Stores
Men's Clothing StoresWomen's Clothing StoresFamily Clothing StoresClothing Accessories StoresShoe StoresJewelry Stores

Recreation & Leisure Activities Stores
Sporting Goods StoresHobby, Toy & Game StoresMusical Instrument & Supplies StoresBookstores

General Merchandise Stores
Department StoresVariety Stores

Electronics & Appliance Stores
Audio/Video & Consumer Electronics StoresHousehold Appliances

Other Specialty Retail Stores
Art DealersFlorists  • Gift, Novelty, and Souvenir StoresOffice Supplies & Stationery StoresPet & Pet Supplies Stores
Used Merchandise Stores

Motor Vehicles & Parts Dealers
Auto Parts & Accessories StoresBoat DealersMotorcycle DealersNew Car DealersRecreational Vehicle DealersTire DealersUsed Car Dealers

Non-Store Retailers
Online ShoppingMail Order HousesKiosks


 

One of The ROI's Online Retail Calculators

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more info All 6 online PROJECTING CALCULATORS

One of The ROI's How-To Strategy Seminars

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Recorded Live at TOPICAL TUESDAYS Retail Strategy Seminars

This lively webinar, presented by Pat Johnson and Dick Outcalt, Co-Founders of The Retail Owners Institute®, introduces Key Financial Ratios for retailers to monitor, plus the indispensable OWNER'S DASHBOARD. A simple – yet elegant! – one-page form, it enables retailers to see ahead, and make adjustments as needed.
  • How to measure the "leading indicators" of the financial health of your business
  • Monitor your business vitality
  • Project the performance targets you wish to achieve
  • Use the lead time to make needed adjustments
  • Demonstrates the online KEY RATIOS Calculator

just click the blue circle to begin

click here for your master copy of the OWNER'S DASHBOARD one-page form

more info • see all 22 recorded Retail Strategy Seminars

The Indispensable OWNER'S DASHBOARD
The Indispensable OWNER'S DASHBOARD
©Copyright, The Retail Owners Institute® and Outcalt & Johnson: Retail Strategists, LLC. All rights reserved.

One of The ROI's Quick Reference Tools for Retailers

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Formulas for Key Retail Financial Ratios

 

 
 

How to Calculate
Your Key Financial Ratios

Where to Find the Information

What the Ratios Tell

Current Ratio =
Current Assets divided by Current Liabilities

Your balance sheet

Tests for solvency or ability to meet current debt obligations. Measures how well you can cover current liabilities with liquid assets. (Higher is better; 2.0 is average.)

Quick Ratio =
Cash + Accounts Receivable divided by Current Liabilities

Your balance sheet

Tests the degree of solvency most strictly, using only the most liquid current assets. (Higher is better; .5 is average.)

Debt-to-Worth Ratio =
Total Liabilities divided by Total Owner's Equity

Your balance sheet

Compares what the company "owes" creditors to what it "owns." Measures the financial strength of the business. (Lower is better; 1.0 is average.)

Inventory Turnover =
COGS (Cost of Goods Sold) divided by Average Inventory @ Cost

COGS are recorded on your income statement; inventory is found on your balance sheet.

Measures how often, at present rate of sales, your entire inventory is completely sold and replaced during a given year. Measures inventory "velocity." (Higher is better; average depends on industry.)

Gross Margin % =
Gross Profit $ divided by Net Sales

Your income statement (P&L)

Indicates percentage of sales dollars remaining after costs related to purchasing merchandise are recognized.

Profit Before Taxes % =
Profit Before Taxes divided by Net Sales

Your income statement (P&L)

Indicates percentage of sales dollars remaining after all costs (except taxes) are recognized. (Higher is better; average depends on industry.)

Return on Assets (ROA) =
Profit Before Taxes divided by Net Assets

Your income statement and balance sheet

Indicates pretax return on assets; measures productivity of assets. (Higher is better; average depends on industry.)

GMROI (Gross Margin Return on Inventory) =
Gross Margin $ divided by Average Inventory @ Cost

Gross Margin - your income statement
Inventory @ Cost - your balance sheet.

Measures the gross margin returned for each dollar invested in inventory. (Higher is better; average depends on industry.)

   
     

 

 

One of The ROI's How-To Articles

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more info • All 47 helpful HOW-TO Articles for busy retailers


Go Figure! Calculate Your Key Ratios in 12 Seconds Each!

"So...how's business?"

How many times a month does someone ask you—even in the most casual of ways—how your business is doing? 

And how many times does the answer depend almost entirely on the kind of day you’ve had when the question gets asked? Or, even more common, on what your sales trends are.

Here's how to really answer that question: by knowing how you compare to other stores like yours. And not just on sales results, but on the true measures of your viability: your financial strength.

To do that, you simply monitor the true "vital signs" of your business - as measured by key ratios - and compare your performance to benchmark numbers from stores like yours. 

Go Figure! Find Your Store's Key Ratios...In Twelve Seconds Each!

You can get a definitive (and non-emotional) financial assessment of your business once you know how to use the numbers on your balance sheet.  The Retail Owners Institute has identified some Key Ratios for Retailers to monitor.

These focus on the strength, solvency, profitability and productivity of your operation.  And best of all: you can calculate each of them, for yourself, whenever you want  – in no more than 12 seconds each!

"Strength": The Debt-to-Worth Ratio

The debt-to-worth ratio is the #1 measure of the financial strength of a business.  It compares the amount invested in your business by creditors to that invested by the owners. The more a company is supported by debt, the riskier it is considered. In other words, the higher the ratio the riskier the business. So, debt-to-worth is a measure of the safety of your business.
   
To calculate debt-to-worth, divide your total liabilities by your net worth (equity). Use the amounts listed on your balance sheet.

 

Total Liabilities divided by Net Worth = Debt-to-Worth
$300,850    ÷    $99,450    =    $3.03

In this example, there are $3.03 of creditors’ funds for every $1 of owners’ funds invested in the business.

Higher Is Not Always BetterFor instance, a higher debt-to-worth ratio means more debt, which is not necessarily a good thing.

"Solvency": The Current Ratio

Current ratio is an indicator of solvency, or the ability to meet your current debt obligations. The current ratio measures how well you can cover current liabilities with liquid assets.  (Or, put another way: it indicates your ability to pay your bills on time!)
   
Remember, current assets are cash or assets which can be converted to cash in one operating cycle (usually one year).  Similarly, current liabilities are debt obligations due within one operating cycle.  For retailers, typically the largest amount in current assets is your inventory.

The current ratio is calculated by dividing your current assets by your current liabilities:

Current Assets divided by Current Liabilities = Current Ratio
$378,000    ÷    $300,850    =    $1.26

   
In this example, there is $1.26 of current assets available to cover every $1 of current debt.

"Productivity": Inventory Turnover

Inventory turnover is essential to all retailers, from the newest start-up to Fortune 500 chains. It measures how often, at your present rate of sales, your entire inventory is completely sold and replaced during a given period.

There are two formuals to calculate turns; one uses inventory at cost, the other uses inventory at retail.

Sales @retail divided by  Average Inventory @Retail;
or,
Cost of Goods Sold divided by Average Inventory @Cost

COGS ÷ Average Inventory @Cost = Inventory Turnover
$635,000 ÷ $292,500 = 2.2

Theoretically, this means inventory is “sold out” and “replaced” 2.2 times per year. To convert inventory turnover into days, take 365 days and divide by the turnover rate. In the above example, 365 is divided by 2.2. The result is 166 days, which means at any given moment in time, 166 days (or five and a half months) of inventory (e.g., "one turn's worth" of inventory) should be on hand.
   

"Profitability": Profit Before Taxes Percentage

Profit before taxes percentage measures your profitability after sales and all deductible expenses are recognized. It indicates the percentage of original sales dollars remaining as profit, and taxed as such.
The formula is Profit before Taxes divided by Sales.

Profit Before Taxes ÷ Sales = Profit Before Taxes Percent
$10,000 ÷ $1,000,000    =  1%

Using this example, of every $1 in sales, only 1% (1 cent) remains as profit before taxes. (Note: profit before taxes measures your operating efficiency, as opposed to gross margin percentage which measures your sales efficiency.)

The Best Part: Compare Your Ratios to Other Stores Like Yours

Once you have these four key ratios, you can readily compare your financial situation to other retail operations like yours.  Simply go to your retail segment here at The Retail Owners Institute.  See the most recent benchmark numbers for your store type.  Even better, spend some time with the charts showing the 5-year trends for your industry.

Use Benchmark NumbersGo to your retail segment here at The Institute. Spend time with the 5-year trends charts for your industry. How do you compare?

By comparing your ratios with industry standards, you can note whether your ratios are more or less favorable than other businesses within the industry. Higher is not always better. For instance, a higher debt-to-worth means more debt—which is not necessarily more desirable.

Keep in mind that no one ratio, even compared to industry averages, tells as much about your operation as the trend of your ratios. For example, has your current ratio dropped (liquidity lessening) over the last year? If so, what will it be in another six months? What action(s) must you take to prevent a slip from continuing?

You may find it helpful to write down your reasoning. By facing the facts now, you’ll be better prepared for those unexpected ups and downs.




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Which Bank for You?
Which Bank for You?

Bankers - Where Are They When You Need Them?

Most retailers are constantly in and out of the debt market to finance daily operations.  Having a reliable lender is vital to your success.  Recognize that your banker - the "relationship manager" - is in fact a salesperson; the actual credit decision will be made by "the loan committee".

Your responsibility is to arm your banker to effectively present your request to the Loan Committee.  And that demands that you "speak their language". Especially in today's economy, the need to speak "Conversational Banker-ese" is greater than ever.

Plus, consider carefully the pro's and cons of different types of financial partner you might approach. Let's start with an overview. 

  Advantages Disadvantages
Traditional
Banks
  • Stability
  • Array of financial services
  • Many to choose from
  • Competitive pricing
  • Lack of retail industry experience or focus
  • Often slow to respond; impersonal
  • Less interested in smaller transactions
  • Generally available only to profitable companies
Private Equity Funds
  • Provide "hands on" value/added expertise
  • Generally well-capitalized
  • May provide access to industry and management expertise
  • Provide "hands on" value/added expertise (Yes, it's the good news/bad news thing!)
  • Strict investment criteria
  • Equity ownership required
  • Required returns often 25% +
  • Require track record of a proven concept
Asset-Based Lenders
  • Nontraditional transactions
  • Fewer financial covenants
  • Industry focused
  • Rigid documentation standards
  • Higher transaction costs
  • Onerous reporting
  • Traditionally perceived as lending only to troubled companies

The Institute's Owner's Dashboard
The Institute's Owner's Dashboard

Focus on Your Financial Strength 

Use The Institute's Owner's Dashboard Trend Form to track your progress. It's a simple - yet powerful! - three-step process:

Step 1: Enter LY results for five key ratios

Step 2: Enter This Year's Targets

Step 3: Each month (no later than the 10th of the month!) enter YTD results

Immediately see whether - and if so, where - you need to make adjustments now to achieve the results you want. "Lead time" is one of your most valuable assets.  Use our Owner's Dashboard Trend Form  to put time on your side.

(Need more info on these ratios, how to calculate them, and what they mean?  See the Retail Finance Basics section here at The ROI.  And, view this online webcast from The ROI Co-Founders for more about the Owner's Dashboard. Click here to download and printout your own master copy of the Owner's Dashboard Trend Form)


The ROI's OWNER'S DASHBOARD form
The ROI's OWNER'S DASHBOARD form

Focus on Your Financial Strength 

Use The Institute's Owner's Dashboard Trend Form to track your progress. It's a simple - yet powerful! - three-step process:

Step 1: Enter LY results for five key ratios

Step 2: Enter This Year's Targets

Step 3: Each month (no later than the 10th of the month!) enter YTD results

Immediately see whether - and if so, where - you need to make adjustments now to achieve the results you want. "Lead time" is one of your most valuable assets.  Use our Owner's Dashboard Trend Form  to put time on your side.

(Need more info on these ratios, how to calculate them, and what they mean?  See the Retail Finance Basics section here at The ROI.  And, view this online webcast from The ROI Co-Founders for more about the Owner's Dashboard. Click here to download and printout your own master copy of the Owner's Dashboard Trend Form)


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Where Do I Start?
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