FEDA News & Views

FEDAJanFeb2013

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Distributor Profits continued enhancements to turnover. If the sales growth slackens, then turnover improvements will be only a minor issue. The Change in the Average Collection Period Accounts receivable collection days presented a slightly better pattern than inventory turnover. According to the results shown in Exhibit 6, two out of three segments were able to improve their "Accounts Receivable Day." At the same time, while things got better, they did so at an incredibly slow rate. Again, the net result when viewed with strong sales growth was a need for a greater investment in accounts receivable. Moving Forward Management is continually challenged to plan for the future while looking over their shoulder at historical information. That rearview mirror suggest strong sales growth, a deterioration in the gross margin percentage, an improvement in the operating expense percentage and more or less treading water with regard to inventory and accounts receivable. The net result is an increase in ROA that is close to glacial. The problem is that the key profit drivers are not being combined in a way that causes sales growth to translate directly into ROA growth. It's time to make some changes in the key profit drivers. Gross margin is clearly an area of concern. Without a continued on page 44 Check out Al's new book Triple Your Profit! Stop Being a Profit Soldier and Start Being a Profit Winner Only 10 percent of all companies produce a truly great profit. What's the problem? Companies don't know what really drives profit—and it isn't sales, says FEDA friend Al Bates, who has spent more than 30 years analyzing distributor financial statements. Here's the problem: • Companies think they can cut price and make it up with volume. (They can't.) • Companies think improved productivity will lead to higher profit. (It never has in the past and it won't today.) The key is to focus on profit, not sales, and have a plan, says Al. In his new 86-page book, which is geared to small wholesale distribution firms that are serious about making more money, he'll show you in seven steps how to dramatically increase the profit in your firm. To order your copy, visit naw.org and select the publications link. Jan uar y/Febr uar y 201 3 39

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