Question

For the past two years, Mr. Jacobson has been the owner of Buon Uomo, a trendy menswear store specializing in moderate-priced men’s casual clothes. His previous training and experience as an assistant buyer in a major department store were instrumental in the development of a successful and profitable business. Lately, however, he has felt that business has been stagnant. Help him use the strategic profit model to understand his financial situation and opportunities for improvement.

Last fiscal year, Mr. Jacobson had the following on his income statement:

	Fall		Spring		Total
	$	%	$	%	$	%
NS	600,000	100	900,000	100	m.	r.
COGS	350,000	c.	g.	i.	n.	s.
GM	a.	d.	400,000	j.	o.	t.
OE	200,000	e.	h.	k.	p.	u.
Profit	b.	f.	115,000	l.	q.	v.

1. Complete the income statement. Please show your work and clearly label your answers with the letter they correspond to (a, b, etc).

2. Mr. Jacobson also reported the following on his balance sheet at the end of the year:

Merchandise Inventory	$250,000
Accounts Receivable	$20,000
Other Current Assets	$35,000
Fixed Assets	$400,000

Using the Strategic Profit Model, answer the following questions. Show your work.

1. What is Mr. Jacobson’s net profit margin?
2. What is Mr. Jacobson’s asset turnover?
3. What is Mr. Jacobson’s return on assets?

3. What can Mr. Jacobson do if he wants to improve:
   1. Net profit margin?
   2. Asset turnover?

Answer 1

	Fall		Spring		Total
	$	%	$	%	$	%
NS	600,000	100	900,000	100	1,500,000	100
COGS	350,000	58.33	500,000	55.56	850,000	56.67
GM	250,000	41.67	400,000	44.44	650,000	43.33
OE	200,000	33.33	285,000	31.67	485,000	32.33
Profit	50,000	8.33	115,000	12.77	165,000	11

a. Net profit margin : 11 %

b. Asset Turnover = $ 1,500,000 / $ 705,000 = 2.13 times

c. Return on Assets = $ 165,000 / $ 705,000 = 23.40 %

In order to improve net profit margin, increase sales price, decrease cost of goods sold , decrease operating expenses.

In order to improves asset turnover, increase NS