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% Value of Stock Over 90 Days

Value of Stock Over 90 days ÷ Stock Value (x100)

Benchmark: <10% of Stock Value

Description:

This KPI takes the total value of your used vehicle stock, and then states the collective value of the vehicles that are over 90 days old as a percentage of the total value.

Example:

If you have R250.000 invested in used vehicles, how much of this money is invested in vehicles that have been in stock for more than 90 days?

A) Value of Stock Over 90 Days = R17,500
B) Value of Total Used Stock = R250,500
C) % of Funds Over 90 days = 7% (A ÷ B X 100)

Discussion:

The example above illustrates that 7% of the money that is invested in used vehicle stock is currently invested in used vehicles that have been in stock for more than 90 days. What the KPI does not tell you is how much longer than 90 days has the investment been there.

This is a very useful trend to assess because it measures the ability to manage the money that is invested in used vehicle stock as opposed to the units themselves.

Related Terminology:

Absorption % (Version 1)

Aftersales Direct Profit ÷ Total Overheads (x100)

Baseline: 100% +

Description:

This example below demonstrates that 70.31% of the overheads are covered by Aftersales, which leaves a shortfall to be recovered by the Sales Department.

Whenever you are measuring the Absorption of your business you should be aware that there are two very different calculations. Basically, the difference between the two calculations lies within the Semi-Fixed expenses of the Sales department: some statistics include these expenses whilst others exclude them. this of course makes a considerable difference to the Absorption figure. This version of Absorption is the most accurate, you will understand why when you read version 2.

Example:

A) Direct Profit from Aftersales = R1,154,223
B) Company Overheads = R1,452,238
C) Sales semi-Fixed Expenses = R189,364
D) Total Company Overheads = R1,641,602 (B + C)
E) Overhead Absorption = 70.31% (A ÷ D X 100)
F) Value of under Absorption = R487,379 (D - A)

Discussion:

The Absorption percentage of a business essentially measures risk. How much of the company's overheads are covered by the profits generated by the Aftersales Departments?

Related Terminology:

Absorption % (Version 2)

Absorption % (Version 2)

Aftersales Direct Profit ÷ Overheads (x100)

Baseline: 110% +

Description:

Absorption was originally set out to measure how much of the company's overheads are being covered by the profits generated from Aftersales, but this second version does not provide you with a truly accurate reflection. This is because the Semi-Fixed Expenses of the Sales Department are omitted from the equation.

The example demonstrates that 79.49% of the overheads are covered by Aftersales, but where are the Semi-Fixed Expenses of the Sales Department?

Example:

A) Direct Profit from Aftersales = R1,154,223
B) Company Overheads = R1,452,238
C) Overheads Absorption = R79.49% (A ÷ B X 100)
D) Value of under Absorption = R298,015 (B - A)

Discussion:

Some people say that they should be included and some say that they should be excluded. Neither one is right nor wrong, but it does make a big difference to the Absorption percentage. It is all a matter of what you want to measure.

If your financial reports show this version of Absorption then you know that you still have to earn sufficient profit from the Sales department to cover the Semi-Fixed Expenses. Be sure that you know which version you are using or you could be faced with a sizeable shortfall.

Related Terminology:

Absorption % (Version 1)

Acid Test (Version 1)

Current Assets x Stock ÷ Current Liabilities (x100)

Guideline: Own Policy

Description:

The Acid Test for the motor industry is very subjective as the valuations of our stocks are at the mercy of market forces and people's opinions. For instance, if your used vehicle stock is stated as R250,364 how much could you get for it if you had to liquidate it today?

The same can be said for your Parts stock although most manufacturers have a valuation clause within their franchise agreements, typically, this is around 15% below wholesale price of current stock; this usually excludes Obsolete Stock.

Debtors are also subject to scrutiny, how much of your debtors would you be able to recover? You can of course sell your debtors to a factoring company, but this will incur additional costs, usually around 20% of their value.

Example:

Discussion:

This Acid Test of many companies asks this question. If we were to liquidate our Current Assets, would we be able to payoff our short-term debt?

There are many different calculations for the Acid Test and every company differs depending upon their own particular requirements. Always check the formula for this one to be sure that you know what is being measured.

Related Terminology:

Acid Test (Version 2)

Total Assets x Debtors ÷ Total Liabilities (x100)

Guideline: Own Policy

Description:

In this example, the Acid Test shows that is you were able to sell all of your Assets today and recover their staed values, you would be able to cover 84% of your investment; the remaining 16% is tied up in your Debtors.

The equation excludes the value of Debtors because it is unlikely that you would be able to recover all of this money from the people that owe it to you.

The acid test is sometimes shown as a ratio as opposed to a percenatge. In this instance the reported figure above would be 0.84:1 (C ÷ D)

Example:

A) Total Assets = R4,623,256
B) Company Debtors = R735,994
C) Assets minus Debtors = R3,887,262 (A - B)
D) Total Liabilities = R4,623,256
E) Acid Test = 84% (C ÷ D X 100)

Discussion:

This version of the Acid Test measures the balance between the debtors and the rest of the company's investments. This KPI asks the question, if you were to sell all of your Assets today how much money would you be able to recover?

Related Terminology:

Adopted Stock

Fully Paid New Vehicle Stock

Benchmark: 0

Description:

Most new vehicle stock is supplied to a dealer from a franchise manufacturer on a consignment basis. This means that when new vehicles are delivered, the dealer usually pays the interest charges or stocking charges as they are more commonly known.

Example:

After an defined period (typically 120 days) the new vehicles have to be adopted by the dealer, or in other words, the dealer must pay for the vehicles in full.

Discussion:

Before reaching the point of adoption, when a dealer sells a vehicle, the consignment agreement stipulates that the vehicle must be paid for at the point of registration. Therefore new vehicle stock is paid in full in one of two scenarios.

1) When the vehicles are registered
2) When they reach the end of their consignment period

When vehicles reach the end of their consignment period they become Adopted Stock. The worst scenario that can happen is to be adopting vehicles because it absorbs huge amounts of money, which in turn prevents activity in other areas of your business.

Related Terminology:

Advertising Cost per Unit Sold

Money Spent on Advertising ÷ Units Sold

Guideline: Own Policy

Description:

This KPI is useful for ascertaining your advertising budget for retail sales, based on your sales objectives and should not be used to judge advertising effectiveness.

Example:

A) Money Spent on Advertising = R84,201
B) Units sold = 663
C) R Advertising per Unit Sold = R127 (A ÷ B)

Discussion:

This statistic is influenced by many factors, not least of which being the selling skills of your sales team. You could produce a fantastic advertisement that produces lots of enquiries and for one reason or another your sales team fails to convert them into sales.

This result would generate a high advertising spend per unit sold which could lead you to the false conclusion that you are spending too much on advertising

Related Terminology:

Annualised Parts Sales

Projected Annual Sales Volume

Guideline: Own Policy

Description:

In order to calculate many Key Performance Indicators, your Parts sales Volume may need to be annualised. This is simply a projection of your annual sales based on your current sales performance.

Example:

The formula is the year-to-date sales volume figure, multiplied by 12 then divided by the current month number. For example, if your current reporting period is January to April year-to-date, then the sales figure is multiplied by 12 (12 months in 1 year) and then divided by 4 (April is the 4th month in your reporting period).

A) January Sales = R40,652
B) February Sales = R85,112
C) March Sales = R60,238
D) April Sales = R45,894
E) Sales to date = R231,896
F) Multiply by 12 = R2,782,752
G) Divide by current month = 4 (April)
H) Annualised Sales = R695,688

Discussion:

This is a theoretical figure that provides you with the Sales value that you will achieve at the end of the year if your sales performance where to be maintained at the current rate.

Related Terminology:

Annualised Sales

Projected Annual Sales Volume

Guideline: Own Policy

Description:

This is a theoretical figure that provides you with the Sales volume that you will achieve at the end of the financial year, if nothing changed. That means that you will have to maintain your sales performance, thus meaning that environmental factors will not change dramatically, supply rate stays the same, etc.

Example:

The formula uses the year-to-date sales volume figure, multiply it by twelve (months in a year) and divide it by the number of months which the year-to-date figure represents.

Let's say your financial year runs from January, it is now May, and you want to determine the annualised sales volume figure.

You sold the following number of Units in each month:

January = 46

February = 51

March = 57

April = 63

May = 49

Year-to-Date = 266

Multiply by 12 = 3192

Divide by the number of months which the year-to-date figure represents

It is Divide by 5 = 638.4 this year

Discussion:

This number is often used in many KPI calculations. It represents merely a projection of your annual sales based on your current performance, in the current trading conditions.

Related Terminology:

Annualised Sales per Salesperson

Annualised Sales per Salesperson

Annualised Unit Sales ÷ Number of Sales People

Baseline: >150 Units Per Annum

Description:

It is generally accepted that a newcomer to the industry will sell around 150 units per annum and a good, well established Salesperson will sell in excess of 200 units per annum with average performers anywhere between the two.

This KPI simply measures the average numbers of units a Salesperson sells in 1 year.

Example:

A) Annualised Sales = 945
B) Number of Salespeople = 5
C) Sales per Salesperson = 189 (A ÷ B)

Discussion:

This statistic provides you with your average sales team performance and you may wish to conduct the same formula for each member of the team to accurately assess the strengths and weaknesses. To achieve this result, see Annualised Sales, do the calculation for each Salesperson, and there you have it.

Related Terminology:

Average Bought Cost

P.G Stock ÷ P.G VOR Purchases ÷ P.G Stock Value

Guideline: Product Group Dependent

P.G. = Product Group

Description:

This KPI informs you of the average price that you have paid for your stock in a specific product group or specific product line.

How does this differ from your Average Buying Margin? When you sell a part there are very few systems that tell you how that specific part was ordered i.e. stock order or V.O.R? Obviously the Buying Margin in each sector is very different.

Example:

Let's say that a Parts person ordered an engine on V.O.R. for one of your key customers. The next day a different person invoices that same engine out to the customer with their regular discount terms, not knowing that the engine was ordered on V.O.R.

This scenario actually happened in real life and the dealer in question lost R95 in that instant because the amount of discount given was greater than the profit margin they had in the V.O.R ordering system.

Discussion:

This KPI addresses this shortfall by assessing the true price paid for each product group, thereby protecting the department against too much discount being given where parts are ordered on a V.O.R basis.

Related Terminology:

Average Buying Margin %

Retail Value x Net Invoice Value ÷ Retail Value (x100)

Guideline: Franchise Specific

Description:

This KPI informs you of the average profit margin that is applied to every purchase that you have made, or in other words, it's the average amount of mark-up that you have available.

Example:

A) Retail value of purchases = R167,822
B) Invoice value of purchases = R110,763
C) Average buying margin = R57,060 (A - B)
D) Average Buying Margin% = 34% (C ÷ A X 100)

Discussion:

This example shows that for this period, your parts purchases amounted to R110,763. If you were to sell all these parts at their full retail price the value would be R167,822 and you would be left with a Gross Profit of R57,060. (Let's not talk about discount at this stage)

The calculation is an average of all purchases made in a given period, usually 1 month, but many reports will show you the Average Buying Margin across the different product lines and product groups such as engine, brakes and filters etc.

Typically, you can find this statistic on your parts purchases reports supplied to you by your franchise manufacturer, which is usually run on a monthly basis. It is also evident on some manufacturers composite reports.

Related Terminology:

Average Selling Price

Sales Value of Units Sold ÷ Number of Units Sold

Guideline: Own Policy

Description:

This KPI applies to both new and used vehicles and provides you with your average selling price of the vehicles that you have sold.

This statistic is usually provided for you on your franchise manufacturers composite reports and shows the average selling price for new and used vehicles separately.

Example:

A) Invoice value of vehicles sold = R11,776,590
B) Number of units sold = 945
C) Average Selling Price = R12,462 (A ÷ B)

Discussion:

It is useful for establishing your funding requirements in stock when you are putting together your budgets and business plans.

It is also useful in the assessment of your stock profiling exercises for used vehicles whilst your figures for the new vehicles will be heavily influenced by your fleet sales activity and your customer profile.

Related Terminology:

Breakeven Volume

Absorption Shortfall ÷ Vehicle Variable Gross Profit

Baseline: 0 units

Description:

This KPI informs you of the number of vehicles that you need to sell to enable your business to reach a point of financial breakeven.

Example:

A) Direct Profit from Aftersales = R1,154,223
B) Company Overheads = R1,452,238
C) Sales Semi-Fixed Expenses = R189.364
D) Total Company Overheads = R1,641,602 (B + C)
E) Overhead Absorption = 70.31% (A ÷ D X 100)
F) Value of under Absorption R487,379 (D - A)
G) Variable Gross Profit* =R1,500 per unit
H) Vehicle Breakeven Volume = 325 units (F ÷ G)

Discussion:

This example shows that there is a shortfall in Absorption to the value of R487,379, which means that this business would have to sell 325 units at the average rate of R1,500 Variable Gross Profit per unit to recover this cost at which point your business reaches breakeven.

If Absorption is 100% or higher, then the Vehicle Breakeven Volume is of course zero. However, if Absorption is below 100% then the shortfall will have to be recovered by the Sales Department.

*Variable gross Profit is Vehicle Gross Profit less Variable Expenses. Semi-Fixed are contained within the overheads.

Related Terminology:

Capital Employed

Net Worth + Interest-Bearing Borrowings

Guideline: See Circulation of Funds Employed

Description:

Capital Employed is sometimes called Investment or Funds employed and refers to all of the money that is invested in the company (or nearly all of it).

The total investment is all of the capital that is employed within the company to enable it to operate on a day-to-day basis.

Its constituent parts are Net Worth (the owners funds) and all interest-bearing borrowings. Items such as Creditors, Accruals and the like are excluded from this figure, as they do not attract interest payments.

Example:

Discussion:

The value of Capital Employed informs you of how much money is invetsed into the company to enable it to function on a daily basis and although by itself it is not a KPI it is used in the calculation of many other KPI's

Capital Employed is always shown as a monetary value and is usually shown on the summary page of your financial information. If the value of your Capital employed is not shown on your summary page you can calculate it for yourself from the Balance sheet.

Please keep in mind that the value of the Capital Employed is not the same value as the Total Liabilities.

Related Terminology:

Cash Profits

Net Profit After Interest + Depreciation

Guideline: See Net Profit After Interest

Description:

The difference between your company's stated profits and the actual profit you have made is the value of Depreciation.

Depreciation is shown on your Balance Sheet amongst the Fixed Assets and represents the change in value of some or all of your Fixed Assets.

Example:

Let's say that you spent R50,000 on equipment last year and its value today, because of wear and tear is now R40,000. In this instance, your new Balance Sheet would show your equipment at R40,000 and Depreciation at R10,000.

This is technically a loss of profit, and therefore your company does not pay tax on Depreciation; naturally, there are laws that stae how much Depreciation can be deducted on specific Assets.

Discussion:

Since Depreciation is a paper exercise that reduces your profits, Cash Profit adds back Depreciation to show your true level of profitability and it is this figure that is used to calculate other KPI such as the Loan Repayment %.

Related Terminology:

Circulation of Current Assets (C.O.C.A)

Annualised Company Turnover ÷ Current Assets

Baseline: > 12 Times per Annum

Description:

This KPI is the ultimate Stock Turn calculation for your business as a whole.

The Current Assets of your business contain all of your stocks and therefore this KPI could be viewed as your overall company Stock Turn. The more times you use or circulate your Current Assets, the less money you need to invest in your stocks and therefore the more profit you will make as a direct result.

When you understand the awesome power of this KPI it is surprising that it is not seen in use within the motor industry.

Example:

A) Company Turnover = R14,523,661
B) Current Assets = R1,022,793
C) C.O.C.A = 14.2 times p/a (A ÷ B)

Discussion:

It is often possible to recover more profit through understanding this area of your business than it is from focusing on getting more profit margins from the products and services that you sell so this KPI is worthy of your full consideration.

Related Terminology:

Circulation of Funds Employed (C.O.F.E.)

Annualised Company Turnover ÷ Funds Employed

Baseline:

6 times per annum (if property is on the balance sheet)

12 times per annum (if property is not on the balance sheet)

Description:

This KPI tells you the number of times that you use, or circulate the money that is invested within your dealership in 1 year.

C.O.F.E. as it is more commonly known is usually found on the company summary page of your reports and is really a measure of how good your management team are at utilising the funds that are entrusted to them.

It really is true to say that making profit is one thing, but keeping that profit requires a totally different skill.

If you are familiar with stock turn calculations, then this KPI works in exactly the same way except that it is measuring the use of the dealership's money as opposed to the stock in a particular department.

Example:

A) Company Turnover = R14,523,661
B) Funds Employed = R2,420,610
C) C.O.F.E = 6 times p/a (A ÷ B)

Discussion:

This statistic tells you how many times you use your money in 1 year and the more times you use your money, the less you need to invest and the more profit you will make as a result.

Related Terminology:

Cost of Overage Stock (Used Vehicles)

Days in stock ÷ Days Stock Turn x GP per Unit

Benchmark: <Gross Profit per Unit x 2

Description:

This statistic measures the profitability of the space that a used vehicle occupies rather than any measurement of the used vehicle itself. Understanding of this difference is critical to this concept.

Let's assume that your used vehicle Stock Turn is 35 days and your Gross Profit is R1,500 per used vehicle.

If you have a used vehicle that remains in stock for a period of longer than 35 days, then the space it occupies is no longer productive at the average rate and is missing profit opportunities.

Example:

A) Actual Days in Stock = 87
B) Stock Turn = 35 Days
C) Failed to sell = 2.49 times (A ÷ B)
D) Average Gross Profit = R1,500
E) Cost of Overage Stock = R3,735 (C X D)

This concept accepts the principle that your used vehicles generate R1,500 every 35 days, whereas this vehicle has failed to do so 2.49 times.

Discussion:

In order to establish the value of this lost opportunity you must divide the actual number of days a vehicle has been in stock by your Stock Turn and then multiply this by your average Gross Profit.

Related Terminology:

Current Ratio

Current Assets ÷ Current Liabilities

Benchmark: 1.25:1 - 1.3:1

Description:

This KPI informs you whether the value of your Working Capital is enough to service your business. It's rather like the company's blood pressure test.

The calculation for Current ratio is conducted from the Balance Sheet and is simply Current Assets divided by Current Liabilities.

This example below is showing a Current ratio of 1.3:1, which means that for every R1 of Current Liability you have R1.30 in Current Assets.

We need this amount of cover because the nature of our business dictates that our stocks are always suffering the effects of depreciation and as an industry, we have the tendency to pay out money at a faster rate than we receive it.

Example:

A) Current Assets = R850,527
B) Current Liabilities = R654,251
C) Current Ratio = 1.3:1 (A ÷ B)

Discussion:

This KPI is also known as the Working Capital ratio and is one of the most important ratios to monitor to ensure that you have enough cash available on a day-to-day basis to enable your business to function properly.

Related Terminology: