CRA CRA Retail Financial Analysis & Metrics 2 — Questions and Answers
Question 1: What is GMROI and what does it evaluate?
- Gross Margin Return on Inventory Investment — profitability of inventory investment (Correct answer)
- General Merchandise Revenue On Investment — total store revenue efficiency
- Gross Margin Rate of Increase — year-over-year margin growth
- General Markup Rate of Items — average item pricing
Correct answer: Gross Margin Return on Inventory Investment — profitability of inventory investment
GMROI (Gross Margin Return on Inventory Investment) measures how much gross profit is earned for every dollar invested in inventory.
Question 2: A retailer's operating expense ratio increased while revenue was flat. What is the likely financial impact?
- Improved net income
- Compressed operating profit margins (Correct answer)
- Higher inventory turnover
- Reduced cost of goods sold
Correct answer: Compressed operating profit margins
When operating expenses grow as a share of flat revenue, operating profit margins shrink because costs are consuming more of each sales dollar.
Question 3: What does 'weeks of supply' (WOS) indicate in retail planning?
- Lead time from vendor to store
- How many weeks current inventory will last at the current sales rate (Correct answer)
- Number of weeks in a planning season
- Promotional calendar duration
Correct answer: How many weeks current inventory will last at the current sales rate
Weeks of supply is calculated as on-hand inventory divided by average weekly sales rate, showing how long stock will last.
Question 4: Which pricing strategy sets prices based on what competitors charge for similar products?
- Cost-plus pricing
- Competitive pricing (Correct answer)
- Psychological pricing
- Value-based pricing
Correct answer: Competitive pricing
Competitive pricing benchmarks prices against competitors to stay in line with or undercut the market, regardless of internal costs.
Question 5: What is markdown optimization in retail financial planning?
- Automating payroll reductions
- Strategically timing and sizing price reductions to maximize sell-through and margin (Correct answer)
- Reducing vendor invoice amounts
- Lowering minimum wage compliance costs
Correct answer: Strategically timing and sizing price reductions to maximize sell-through and margin
Markdown optimization uses analytics to determine the best timing, depth, and sequence of price reductions to clear inventory while preserving margin.
Question 6: In retail, what does 'return on investment' (ROI) for a promotional event measure?
- Net profit generated by the promotion relative to its cost (Correct answer)
- Number of new customers acquired
- Percentage increase in store traffic
- Total units sold during the event
Correct answer: Net profit generated by the promotion relative to its cost
Promotional ROI compares the incremental net profit earned during a promotion to the cost of running it, expressed as a percentage.
CRA CRA Retail Financial Analysis & Metrics 2
What is GMROI and what does it evaluate?