Profitability, as a fundamental goal of each profit oriented organization, depends on an elaborated strategy to provide a real value for customers.
The strategic profit model employs three key components: Profit Margin The first key component of the strategic profit model is profit margin. Determine profit margin by subtracting total costs, such as materials, from the total sales to arrive at net income.
Then divide your net income by your sales revenue to arrive at a percentage. That percentage represents your net profit margin.
Higher profit margins result in higher return on equity. Calculate asset turnover by taking your sales revenue and dividing it by your total assets. If asset turnover decreases, the return on equity decreases. Leverage Leverage represents the final component of the strategic profit model.
Calculate leverage by taking your total liabilities, such as mortgages and revolving lines of credit, and dividing them by your total equity.
Return on Equity Determine return on equity by multiplying your net profit margin, asset turnover and leverage. If your company holds a 36 percent profit margin, a 40 percent asset turnover and 37 percent leverage, you end up with a return on equity of approximately 5 percent.
A return on equity of approximately 10 percent to 12 percent represents the norm. Other Considerations The strategic profit model lends itself to a visual format, making it an excellent tool for demonstrating how changes in profit margins, leverage or asset turnover impact the business.
It also provides a simple way to see and evaluate changes over time. The strategic business model suffers from the problem that the results only prove as reliable as the original data.
If your business does not maintain accurate records, the numbers you get from the calculations provide little value.Business Forms & Templates. Get instant access to hundreds of business forms, templates, and contracts online today. Find documents for almost every kind of business such as purchase orders.
Strategic Profit Model a tool used to assess a firm's profitability; return on equity is calculated by multiplying the net profit margin by the asset turnover to obtain the return on assets which, in turn, is multiplied by the financial leverage.
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ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS (third edition), by Tom Tietenberg; Harper Collins, ; ISBN THE BASIC PESSIMIST MODEL. One end of the spectrum is defined by an ambitious study published in under the title The Limits to Growth. Based on a technique known as systems dynamics, developed by Professor Jay Forrester at MIT, a large-scale computer model .
Porters Profit and Vrio Model. Topics: Strategic management, A View of the Resource/Profit Model: A Non-Profit, Service Perspective Parents have long pursued what they consider the best education for their child(ren).
However, horrific events like the April school shooting massacre at Columbine High School near Denver, . Resource/Profit Model paper. Consider and identify a good or service to which you are familiar. This could be a good or service that the company, which you are employed, offers or a good or service another organization offers.