Retail Dogma

Retail Financial Statements

What Are the Retail Financial Statements?

The financial statements are a set of documents generated by a business from its different financial data, and is intended to give a picture of its financial performance.

A retail business has the following financial statements

  1. Income Statement or P&L
  2. Balance Sheet
  3. Cash Flow Statement

Income Statement (P&L)

Retail financial statement: P&L statement
Multi-store P&L Excel Template

Also referred to as P&L or Profit & Loss statement, the income statement tracks the revenue of the business, all the costs incurred in a specific period, and the final net profit generated after subtracting the costs from the revenue.

The line items tracked by a retail P&L statement are:

  • Sales/ Revenue
  • COGS (Cost of Goods Sold)
  • Gross Margin
  • Retail Overheads (Operating Expenses)
  • EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)
  • Store-Level Profit *
  • Net Profit

*Store-level profit is tracked separately before adding common expenses, in order to give a clear picture on whether or not this particular store location is profitable on its own and help in making decisions about stores opening and closures.

You can download this multiple retail stores P&L excel template from members area.

As a Retail Manager, you are expected to actively manage the P&L of your store portfolio.

By P&L management, we mean managing every line item of the statement, by analyzing the P&L statement and taking actions to maximize the net profit at the end of the measured period.

Read our complete guide on P&L Management

Balance Sheet

Retail Balance Sheet

The balance sheet tracks the assets and liabilities of the business by the end of the specified period.

Examples of Assets:

  • Property & Equipments
  • Inventory
  • Goodwill
  • Accounts Receivable (what other customers/businesses owe you)
  • Cash

Example of Liabilities

  • Accounts Payable (What you owe other businesses)
  • Debt: Short & long term debt

Shareholder’s Equity

The shareholder’s equity will include the share capital that the owners invested in the business + any retained earnings/losses that have been accumulated over the years.

It is called balance sheet because total assets have to equal total liabilities + shareholder’s equity.

We explain it in details in: Retail Balance Sheet Explained

Cash Flow Statement

Retail Cash Flow Statement

The cash flow statement shows the movement of cash in and out of the business during the particular period measured and under which category of activity this movement is categorized.

Activities are broken down into:

  • Operating
  • Investing
  • Financing

Example

You sold products for 100,000 $ and received the amount from customers. This will reflect as +100,000 $ in your cash flow statement under the operating activities. Then you paid your suppliers 40,000 $ as cost of goods, this will reflect as -40,000$ under operating activities

You bought a new equipment for 3000$, this will show as -3000$ under investing activities

Borrowing 200,000$ to finance your business will show as +200,000$ under financing activities. Then you paid dividend of 50,000$ to the business owners, this will be -50,000$ under financing activities.

At the very end all the cash that went in & out of the business for a specific period will be recorded under the different activities to show whether the business is cash flow positive or negative at the end of that period.

Cash Flow Tracking

It is also recommended as a business owner to keep a monthly cash flow tracking sheet, that tracks your revenue, payment to suppliers and expenses, to make sure every month will be cash positive and plan for any shortages in advance.

This is different from the cash flow statement issued at the end of the year or every quarter.

Retail Cash Flow Spreadsheet
Retail Cash Flow Tracker

Why you need to understand retail financial statements?

Whether you are a retail manager or a retail owner you need to be familiar with the different retail financial statements that apply to your role.

Retail Managers

As a Retail Manager at a retail company, you don’t usually get access to the balance sheet and cash flow statement, but you should be aware of all the retail financial statements at least to understand what the business owners are looking at and how they measure the overall business performance .

For e.g if you make a suggestion of opening new stores in certain area, you should be aware that for your suggestion to be executed, the owners/ senior management will need to have enough cash to invest in this expansion. If the business itself does not have enough free cash flow, this would mean that the operation will have to be financed by borrowing, which will add financing costs that have to be taken into consideration while assessing the feasibility of the new operation.

Your main KPI as a retail manager will usually be to manage the P&L of the locations you are responsible for.

Read our complete guide on P&L management for more insights about this process, and check out our Retail Budgeting Course on how to create a full P&L budget for your stores.

RECOMMENDED COURSE

Retail Owners

As a retail or ecommerce business owner you should be generating & tracking those statements quarterly or annually to assess your business performance, whether this business is managed by you or by a management team.

You should always be aware of how your balance sheet looks like and where your current working capital stands at. Read our article on retail balance sheet to know why it’s actually the balance sheet that matters at the end of the day.

Retail Financial Statements for Investors or Buyers

Investors or buyers interested in retail or ecommerce businesses will first look at how those businesses are performing financially and how they have been managed through their financial statements. Looking at the financial statements of any business can give you enough knowledge to know how this business is run, and whether or not it is a healthy business that you want to invest in, especially when you look at multiple years of performance.

Check out our course on Retail Business Performance Analysis, which analyzes the performance of a business, starting from its income statement and going deeper into more functional reports and metrics, based on the findings in the statement.

Retail Management Courses

More Resources

Thank you for reading this article on Retail Financial Statements. We recommend the below free resources as well:

Read more articles on Retail Financials or join the academy and learn how to manage a retail business end-to-end, by steering all functions towards healthy financial performance at the end.