Question

S Shoes sells fashionable shoes at reasonable prices and reasonable quality. After a few years, S Shoes decided to create a website and offer their products online.

Below are the current financial figures for the retail outlets and for the online sales.

S Shoes	Retail Stores	Online Shop
Net Sales	400,000	100,000
COGS	200,000	50,000
Gross Profit	200,000	50,000
Expenses	40,000	20,000
Taxes	5,000	1,000
Earnings before Interest	155,000	29,000
Total Assets	300,000	40,000

Calculate for both the Retail Stores and the Online Shop the:

a. Profit Margin:

b. Asset Turnover:

c. Return on Assets (ROA):

d. And compare and contrast these two business models for S Shoes.

Answer 1

Note: Please rate the answer.

Answer:

A, B & C :

• All the denotations, formulas, calculation are in the image below.

D)

• The profit margins are better of retail stores which means if they tap similar market-share as by online store, the income will be considerably higher for retail stores.
• Whereas the usage of asset was better for online store as asset turnover and ROA was better for online only. So if company has a constraint on how much it can invest then online would have been a better option

Net Sales COGS Gross Profit Expenses laxes Earnings before InterestF Total Assets Profit margin Asset turnover ratio A/ G Return on assets Formula/ Denotation Retail Stores Online Shop 1,00,000 50,000 50,000 20,000 1,000 29,000 40,000 29.00% 2.500 0.725 4,00,000 2,00,000 2,00,000 40,000 5,000 1,55,000 3,00,000 38.75% 1.333 0.517