Retailing Management, 10e (Levy)
Chapter 6 Financial Strategy
1) Return on assets (ROA) is the profit generated by the assets possessed by the firm.
2) Self-gratification for the retailer is classified as a societal objective.
3) Gross margin is the total revenues received by a retailer that are related to selling merchandise
during a given time period minus returns, discounts, and credits for damaged merchandise.
4) Cost of goods sold (COGS) includes what the retailer pays to suppliers for the merchandise the
retailer sells.
5) A formula for calculating inventory turnover is: Cost of goods sold (COGS)/Average inventory
at cost.
6) The formula for calculating asset turnover is: Asset turnover = Cost of goods/Total assets.
7) Charging for space in stores is referred to as a slotting allowance.
8) Same-store sales is the same as comparable-store sales growth.
9) Top-down planning means that goals get set at the top of the organization and are passed down
to the lower operating levels.
10) Output measures assess the results of a retailer’s investment decisions.
11) Jake, who runs a health food store, finds it is rewarding to interact with customers who like to
eat organic and health food. Hence, he is recognized in the local community. Which objective of
retailing does Jake emphasize by this practice?
A) Financial objective
B) Personal objective
C) Societal objective
D) Environmental objective
E) Administrational objective
12) Which of the following statements is not true about the strategic profit model?
A) It is a method for summarizing the factors that affect a firm’s financial performance.
B) It indicates the impacts of factors affecting a firm’s return on assets (ROA).
C) It decomposes return on assets (ROA) into net profit and operating expenses.
D) It illustrates the different approaches for achieving a high return on assets (ROA).
E) It suggests profit margin management path and asset turnover management path.
13) Which of the following is an integral part of the strategic profit model?
A) Retained earnings
B) Asset turnover
C) Inventory turnover
D) Current liabilities
E) Gross margin
14) What does asset turnover measure?
A) It is the retailer’s gross sales divided by its net sales.
B) It is the retailer’s total productivity divided by its net sales.
C) It is the retailer’s average productivity divided by gross sales.
D) It is the retailer’s net sales divided by its assets.
E) It is the retailer’s total productivity divided by gross sales.
15) Operating profit margin is
A) Gross margin minus operating expenses.
B) Cost of goods sold minus gross margin.
C) Net sales minus gross margin
D) Operating expenses minus gross margin.
E) Operating expenses divided by net sales.
16) If you had $50,000 and you wanted to invest in stocks, you have two options. Which of the
following ratios would best help you to decide on your investment?
A) Inventory turnover
B) Asset turnover
C) Return on assets
D) Gross profit margin
E) Net profit margin
17) By knowing the return on assets for his bakery, Chuck will know
A) how much profit was generated from his investment in assets.
B) information found only on his balance sheet.
C) information found only on his income statement.
D) total assets divided by net profits.
E) total assets divided by owners’ equity.
18) Which of the following statements does not describe asset turnover?
A) It is the retailer’s net sales divided by its assets.
B) It assesses the productivity of a firm’s investments in its assets.
C) It indicates how many sales dollars are generated by each dollar of asset.
D) It suggests the profit management path.
E) It helps determine the retailer’s ROA.
19) The strategic profit model decomposes ROA into two components
A) operating profit margin percentage and asset turnover.
B) net sales and average organizational turnover.
C) gross sales and average employee productivity.
D) total number of employees and total sales volume.
E) average number of employees and average productivity.
20) Calculate the return on assets for a gun shop that has total assets of $410,000, current assets of
$74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and
operating profit margin of $30,000.
A) 18.3 percent
B) 8.2 percent
C) 7.3 percent
D) 25.0 percent
E) 26.5 percent
21) An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts
payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. In 2016,
its net sales were $2,100,000, and its operating profit margin equaled $42,000. Calculate the store’s
return on assets.
A) 71.4 percent
B) 2.8 percent
C) 7.5 percent
D) 1.5 percent
E) 75 percent
22) Melanie’s Bead Shoppe has total assets of $45,000, accounts receivable of $2,000, accounts
payable of $3,100, and inventory valued at $20,000. Last year, her net sales were $29,000, and her
operating profit margin equaled $14,000. What is her return on assets?
A) 31.1 percent
B) 12.5 percent
C) 7.0 percent
D) 22.0 percent
E) 48.3 percent
23) The information used to analyze a firm’s profit path comes from the
A) balance sheet.
B) profitability statement.
C) income statement.
D) strategic profit model.
E) financial leverage statement.
24) Tony wanted to know what the net sales and the net profit after tax were last year for his
nephew’s business, The Big Guy Shop. Tony should look at the store’s
A) balance sheet.
B) financial leverage statements.
C) strategic profit model.
D) profitability statement.
E) income statement.
25) ________ are the total revenues received by a retailer that are related to selling merchandise
during a given time period.
A) Gross assets
B) Net profits
C) Gross sales
D) Total profits
E) Net sales
26) Which of the following is not a component in the calculation of net sales?
A) Gross sales
B) Customer returns
C) Promotional allowances
D) Interest
27) Country Homes is a store for people who collect country arts and crafts and use them to
decorate their homes. Last year, its net sales totaled $120,500. The cost value of the items it sold
was $72,300. Taxes for the year were $7,680. The only expenses that the operation had were (1)
rent for $3000, (2) salaries to the owner and one part-time assistant for $27,000, (3) utilities at
$1,200, and (4) advertising of $500. Calculate the gross margin percentage for Country Homes.
A) 40 percent
B) 26.3 percent
C) 9.6 percent
D) 60.2 percent
E) 7.3 percent
28) The amount paid for the merchandise by the retailer is the
A) cost of goods sold.
B) gross margin.
C) operating expense.
D) fixed expense.
E) variable expense.
29) What measures the profitability of products that are sold?
A) Accounts receivable
B) Asset turnover
C) Gross margin
D) Owner’s equity
E) Shrinkage
30) ________ gives the retailer a measure of how much profit it is making on merchandise sales
without considering the expense associated with operating the store.
A) Gross margin
B) Financial leverage
C) General expenses
D) Expenses
E) Net profit
31) The formula for calculating gross margin is
A) net sales minus the cost of the goods sold.
B) gross sales plus the cost of goods sold.
C) net sales minus gross sales plus the cost of goods sold.
D) gross sales minus the cost of goods sold.
E) net sales plus the cost of goods sold.
32) Which of the following statements does not describe gross margin?
A) It can be expressed as a percentage of net sales.
B) It is the profit on the goods sold excluding the operating expenses.
C) It is also referred to as gross profit.
D) It is a performance measurement.
E) It is a measure of return on assets.
33) What ratio should a retailer use to best compare the performance of cashmere sweaters versus
cotton sweaters?
A) Cost of goods sold percent
B) Gross margin percent
C) Operating expense percent
D) Fixed expense percent
E) Variable expense percent
34) In response to a growing trend of workers eating at their work stations, OfficeEase, an Internet
retailer, offers a line of products that can be used to protect office equipment and furniture,
including a plastic sheath for a computer keyboard and a spill-proof cup. Last year, its net sales
were $1,450,000 with cost of goods sold for $353,000. The company’s expenses last year totaled
$960,000. Calculate the company’s net profit percentage.
A) 9.4 percent
B) 24.3 percent
C) 66.2 percent
D) 75.6 percent
E) 8.0 percent
35) How is gross margin percent calculated?
A) Gross margin divided by net sales
B) Add operating and interest expenses together and divide by gross sales
C) Net sales multiplied by gross margin
D) Cost of goods sold divided by gross sales
E) Divide net profit by net sales
36) The hosting of a website for the purpose of online retailing would be classified as a(n)
A) cost of goods sold.
B) operating expense.
C) promotional allowance.
D) profit center.
E) asset productivity center.
37) How is operating profit margin percent calculated?
A) Gross margin divided by net sales
B) Add operating and interest expenses together and divide by gross sales
C) Net sales multiplied by gross margin
D) Cost of goods sold divided by gross sales
E) Divide operating profit by net sales
38) Second Chance is a paperback book exchange. For each book trade, the buyer pays a $1 trade
fee. Books that are sold and not traded cost half of their original purchase price. The store has total
assets of $126,000 and current assets of $40,200. Its net sales equaled $35,000, and its net profit
after taxes was $9,000. Calculate the store’s net profit percentage.
A) 7.1%
B) 21.7%
C) 22.4%
D) 25.7%
E) 27.7%
39) Which of the following is expressed as a percentage of net sales?
A) Accounts receivable
B) Net profit margin
C) Gross sales
D) Operating expenses
E) Total assets
40) Candle in the Wind is a store for people who enjoy and collect candles to decorate their homes.
Last year, its net sales totaled $125,000 with $13,700 in taxes. The cost value of the candles it sold
was $42,300. The expenses that the operation has are salaries to the owner and one part-time
assistant for $52,000, administrative expenses of $400, and utilities at $900. Calculate the net
profit after tax for Candle in the Wind.
A) $29,400
B) $17,000
C) $53,300
D) $15,700
E) $16,100
41) Alpha is popular loungewear that prides itself on its versatility. Last year, its net sales were
$1,750,000 with cost of goods of $390,000. The company’s operating expenses totaled $960,000.
Calculate the company’s net operating profit margin percentage.
A) 77.1 percent
B) 22.2 percent
C) 22.9 percent
D) 12.5 percent
E) 19.3 percent
42) Billie Jean’s Bridals has total assets of $350,000, current assets of $74,000, total liabilities of
$280,000, accounts receivable of $12,000, net sales of $64,000, and net profit after taxes of
$23,000. Calculate the retailer’s net profit percentage.
A) 18.75 percent
B) 20 percent
C) 25 percent
D) 31.1 percent
E) 35.9 percent
43) Why would a discount store have a lower gross margin percent than a jewelry store?
A) Discount stores are only beginning to explore gross margin in pricing decisions.
B) Jewelry stores cannot offer the variety that discount stores offer.
C) Discount stores traditionally do not profit as well as jewelry stores.
D) Discount stores have a lower priced merchandise strategy.
E) Discount stores have a higher cost of goods sold.
44) Why is it important for department stores to achieve a high gross margin?
A) Their operating expenses are higher than other retail formats.
B) It is stated in the store’s financial objectives.
C) Without a high gross margin, department stores will be unable to achieve a high asset turnover.
D) The strategic profit model will otherwise change the strategy of the retailer.
E) A low gross margin will turn it into a discounter.