Retail formulas

Acid- Test Ratio

In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use
its near cash or quick assets to immediately extinguish or retire its current liabilities. Quick assets
include those current assets that presumably can be quickly converted to cash at close to their
book values.
Generally, the acid test ratio should be 1:1 or better, however this varies widely by industry. In
general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet
current obligations using liquid assets).
Formula
Acid Test Ratio = Current Assets - Inventory Current liabilities
Average Inventory
Average Inventory is used to Calculate by Adding up the inventory at beginning of Month and
inventory at end of month and divided by 2. It compute Inventory Turn Rate and Gross Margin
Return of Inventory, so it is an extremely important figure.
Formula
Average Inventory (Month) = (Beginning of Month Inventory + End of Month Inventory)
2

Basic Retailing Formula

Formula
Retail Price = Cost of Goods + Markup

Markup = Retail Price - Cost of Goods

Cost of Goods = Retail Price - Markup

Break Even Analysis

The break-even point for a product is the point where total revenue received equals the total costs
associated with the sale of the product. A break-even point is typically calculated in order for
businesses to determine if it would be profitable to sell a proposed product, as opposed to
attempting to modify an existing product instead so it can be made lucrative. Break even analysis
can also be used to analyze the potential profitability of an expenditure in a sales-based business.
Formula
Break-Even ($) = Fixed Costs Gross Margin Percentage
Contribution Margin
In cost-volume-profit analysis, a form of management accounting, contribution margin is the
marginal profit per unit sale. It is a useful quantity in carrying out various calculations, and can
be used as a measure of operating leverage.

Contribution margin can be thought of as the fraction of sales that contributes to the offset of
fixed costs. Alternatively, unit contribution margin is the amount each unit sale adds to profit: it's
the slope of the Profit line.
Formula
Contribution Margin = Total Sales - Variable Costs

Cost of Goods Sold

Cost of goods sold (COGS) includes the direct costs attributable to the production of the goods
sold by a company. This amount includes the materials cost used in creating the goods along with
the direct labor costs used to produce the good. It excludes indirect expenses such as distribution
costs and sales force costs. COGS appears on the income statement and can be deducted from
revenue to calculate a company's gross margin.

COGS is the costs that go into creating the products that a company sells; therefore, the only
costs included in the measure are those that are directly tied to the production of the products.
For example, the COGS for an automaker would include the material costs for the parts that go
into making the car along with the labor costs used to put the car together. The cost of sending
the cars to dealerships and the cost of the labor used to sell the car would be excluded.
Formula
COGS = Beginning Inventory + Purchases - Ending Inventory

Gross Margin
Gross margin, Gross profit margin or Gross Profit Rate is the difference between the sales
and the production costs including the overhead. Gross margin can be defined as the amount of
contribution to the business enterprise, after paying for direct-fixed and direct-variable unit costs,
required to cover overheads (fixed commitments) and provide a buffer for unknown items. It
expresses the relationship between gross profit and sales revenue.
Formula
Gross Margin = Total Sales - Cost of Goods

Gross Margin Return on Investment (GMROI)

A measure of inventory productivity that expresses the relationship between your total sales, the
gross profit margin you earn on those sales, and the number of dollars you invest in inventory.
Formula
GMROI = Gross Margin Average Inventory Cost
Initial Markup Percentage (%)
The initial markup is the average markup required on all products to cover the cost of all items,
incidental expenses, and to obtain a reasonable profit. The initial dollar markup is expressed as a

percentage. Initial Dollar Markup = (Operating Expenses + Price Reductions + Profit) /

(Forecasted Net Sales + Price Reductions)

Initial pricing of a product is an important step in merchandising. The Keystone Method doubles
cost of an individual product to arrive at its selling price (2 x total product cost ). The Dollar
Markup Method takes into account the total amount of operating expenses and desired profit.
These are then broke down on a per product unit basis, which is then added on to the total
product cost. This addition onto the total cost is the dollar markup. This dollar markup is either
expressed as a percentage of the total cost per unit or the selling price.
Formula
Initial Markup % = (Expenses + Reductions + Profit) (Net Sales + Reductions)

Inventory Turnover
Inventory turnover is an equation that measures the number of times inventory is sold or used
over in a period such as a year. The equation equals the cost of goods sold divided by the average
inventory. Inventory turnover is also known as inventory turns, stockturn, stock
turns, turns, and stock turnover.
Formula
Inventory Turnover = Net Sales Average Retail Stock
Maintained Markup

Formula
Maintained Markup ($) = (Original Retail - Reductions) - Cost of Goods Sold

Maintained Markup (%) = Maintained Markup($) Net Sales Amount

Margin Percentage (%)

Margin Percentage (%) is calculated with Retail price and Cost of goods.
Formula
Margin % = (Retail Price - Cost) Retail Price

Markup
Markup is the difference between the cost of a good or service and its selling price. A markup is
added on to the total cost incurred by the producer of a good or service in order to create a profit.
The total cost reflects the total amount of both fixed and variable expenses to produce and
distribute a product.Markup can be expressed as a fixed amount or as a percentage of the total
cost or selling price. Different methods exist in determining the markup of a product.
Formula
Markup ($) = Retail Price - Cost

Markup (%) = Markup Amount Retail Price

Net Sales

Net sales are operating revenues earned by a company when it sells its products.Revenue (net
sales) are reported directly on the income statement as Sales orNet sales.

In financial ratios that use income statement sales values, "sales" refers to net sales, not gross
sales. Sales are the unique transactions that occur in professional selling or during marketing
initiatives.

Revenue is earned when goods are delivered or services are rendered. The term sales in a
marketing, advertising or a general business context often refers to a contract in which a buyer
has agreed to purchase some products at a set time in the future. From an accounting standpoint,
sales do not occur until the product is delivered. "Outstanding orders" refers to sales orders that
have not been filled.
Formula
Net Sales = Gross Sales - Returns and Allowances

Open to Buy
Open to buy is the dollar amount budgeted by a business for inventory purchases for a specific
time period
Formula
OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month Inventory Planned Beginning of Month Inventory

Percentage Increase/Decrease

Formula
Percent Increase/Decrease = Difference Between Two Figures Previous Figure

Quick Ratio
In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use
its near cash or quick assets to immediately extinguish or retire its current liabilities. Quick assets
include those current assets that presumably can be quickly converted to cash at close to their
book values.

Generally, the acid test ratio should be 1:1 or better, however this varies widely by industry. In
general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet
current obligations using liquid assets).
Formula
Quick Ratio = Current Assets - Inventory Current liabilities

Reductions
Reductions is the amount or rate by which a product is reduced.
Formula
Reductions = Markdowns + Employee Discounts + Customer Discounts + Stock Shortages

Sales Per Square Foot (Sales per unit area)

Sales per unit area is a standard and usually the primary measurement of store success. The unit
of area is usually square metres in the metric system or square feet in U.S. customary units.
Square feet are also widely used in retailing in the United Kingdom, but there are signs of a trend
towards use of square metres.
Formula

Sales per Square Foot = Total Net Sales Square Feet of Selling Space

Sales Through Rate (%)

Formula
Sell-Through (%) = Units Sold Units Received

Stock to Sales Ratio

Formula
Stock-to-Sales = Beginning of Month Stock Sales for the Month