In the “Planning Your Own Entrepreneurial Retail Business” exercise , you learned how to estimate the net profits that your business might earn. You saw what would happen if your sales estimate was off by 10 percent. Now it’s time to analyze the dollar investment you need in assets to support your business and how you might finance these assets.

Your investment in assets needs to cover inventory, fixtures, equipment, cash, customer credit (i.e., accounts receivable), and perhaps other assets. These assets could be financed with debt or by investments you or perhaps other investors make in the business.

Compute the strategic profit model ratios under the assumption that your first-year sales are $800,000, net profit is $56,000, total investment in assets is $400,000, and the total debt to finance these assets is $300,000. (Hint: Net worth is equal to total assets less debt.) What would happen to these ratios if net profit rose to $65,000?

Answer rating: 100% (QA)

The strategic profit model can be utilized to compute ... View the full answer