Motor Retail Terminology and Concepts

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D

Days Supply (New Vehicles)

Days in Period ÷ Sales:Stock Ratio

Guideline: Franchise Specific

Description:

This KPI aims to calculate how many days of new vehicle supply you currently have in stock.

Example:

A) Days in Period = 90
B) Units Sold = 39
C) Units in Stock = 21
D) Sales:Stock Ratio = 1.86 (B ÷ C)
E) Days Supply = 48 days (A ÷ D)

This illustration is showing that if you carry on selling at your current Sales:Stock ratio, then you have enough stock to continue trading for 48 days.

Discussion:

Vehicle supply varies considerably between franchise manufacturers, which is the main influence on this KPI.

Related Terminology:

Days Supply (Used Vehicles)

365 ÷ Stock Turn (Annual)

Baseline: <45 Days

Description:

This KPI aims to calculate how many days of vehicle supply you are currently working with.

Example:

A) Number of days in 1 year = 365
B) Annual Stock Turn = 10.4
C) Days Supply = 35 days (A ÷ B)

This illustration is showing that if you carry on selling at your current sales rate, then you have enough stock to continue trading for 35 days.

Obviously, you do not need to carry any more stock than is absolutely necessary because that would be a total waste of your money.

Discussion:

When dealing with used vehicles, you need to read this page in conjunction with Stock Turn to determine the performance that you require.

Related Terminology:

This is also known as Days stock Turn.

Debt Equity Ratio

Total Debt ÷ Net Worth

Baseline: < 1.4:1

Description:

The Debt Equity Ratio measures how much debt your company has compared to the owners funds. This KPI is similar to Gearing, the only difference being that this statistic includes non-interest bearing borrowings such as Creditors and Accruals.

Generally speaking, the value of the owner's funds and the value of borrowed funds is about the same. The bank manager may bring more pressure to bare on your company when the Debt Equity Ratio is showing an increasing trend, especially when the ratio is in excess of 1:1. This could mean that the Bank Manager has more money invested in your company than you do, and as you can imagine, they don't like that!

Example:

A) Total Borrowings = R4,723,161
B) Net Worth = R5,342,663
C) Debt Equity Ratio = 0.88:1 (A ÷ B)

Discussion:

The Debt Equity Ratio is seldom used within the motor industry because Gearing is considered to be a more accurate reflection of the state of the borrowings. This is because some companies are encouraged to increase the values of their Creditors in order to reduce interest-bearing borrowings. In these instances, the Debt Equity Ratio would be unaffected, whilst Gearing would show an improvement.

Related Terminology:

Debtor Creditor Ratio

Debtors ÷ Creditors

Benchmark: <1:1

Description:

This KPI measures the amount of money that your customers owe your dealership compared with the amount of money that your dealership owes your suppliers.

Example:

Let's say that you sell a product to a customer and they agree to pay you in 30 days time; this is known as a Debtor and is a use of your company's money. A Creditor is the exact opposite of this. You receive product and agree to pay your supplier in 30 days time. The Debtors Creditors Ratio shows the relationship between these two amounts of money.

Example:

A) Debtors = R108,182
B) Creditors = R135,227
C) Debtors Creditors Ratio = 0.8:1 (A ÷ B)

Discussion:

As you can see from the example above, on one hand you are loaning money to other companies (Debtors) and on the other hand you are borrowing money from other companies (Creditors).

Generally speaking, it makes good commercial sense to maintain a balance between these two amounts in that they cancel each other out. In any instance, to make your money work smarter, you always need to have more money in Creditors that you have in Debtors thereby showing a ratio of less than 1:1.

Related Terminology:

Debtor Days (Bodyshop)

Bodyshop Debtors ÷ Bodyshop Daily Credit Turnover

Baseline: < 45 days

Description:

The Debtor Days KPI is a measurement of the credit activity within the Bodyshop. Its purpose is to inform you of the average number of days that your customers take to pay you.

Example:

A) Bodyshop Debtors = R126,591
B) Daily Credit Turnover* = R2,943
C) Debtor Days = 43 days (A ÷ B)

Note:
In order to calculate the Bodyshop Daily Turnover, you will need to take the annualised Bodyshop Turnover sold on credit and divide that figure by 365 to arrive at a daily sales turnover.

A) Annual Turnover On Credit = R1,074,195
B) Days in 1 year = 365
C) Service Daily Credit Turnover = R2,943 (A ÷ B)

Discussion:

In many cases, customer credit agreements are for 30 days and all too often these credit terms are not fully instigated and your money is outstanding for longer periods of time. An increasing problem within this sector of business is the value of Debtors owed by insurance companies. Due to very lean trading margins, it is critical to keep control of this KPI.

Related Terminology:

Debtor Days (Business Information)

Aftersales Debtors ÷ Aftersales Daily Turnover

Baseline: < 45 days

Description:

The Debtor Days KPI is a measurement of the credit activity within the Aftersales Departments. Its purpose is to inform you of the average number of days that your customers take to pay you.

Example:

A) Aftersales Debtors = R120,624
B) Aftersales Daily Turnover* = R2,805
C) Debtor Days = 43 days (A ÷ B)

Note:
In order to calculate the Aftersales Daily Turnover, you will need to take the annualised Aftersales Turnover sold on credit and divide that figure by 365 to arrive at a daily sales turnover.

Example:*

A) Aftersales Turnover On Credit = R1,023,825
B) Days in 1 year = 365
C) Service Daily Credit Turnover = R2,805 (A ÷ B)

Discussion:

In the first example provided above, the average amount of debt is outstanding for a period of 43 days. In many cases, customer credit agreements are for 30 days and all too often these credit terms are not fully instigated and your money is outstanding for linger periods of time. The question is how much longer?

Related Terminology:

Debtor Days (Parts Department)

Parts Debtors ÷ Parts Daily Credit Turnover

Baseline: < 45 days

Description:

The Debtor Days KPI is a measurement of the credit activity within the Parts Department. Its purpose is to inform you of the average number of days that your customers take to pay you.

Example:

A) Parts Debtors = R40,208
B) Parts Daily Credit Turnover* = R935
C) Debtor Days = 43 days (A ÷ B)

Note:
In order to calculate the Parts Daily Credit Turnover, you will need to take the annualised Parts Turnover sold on credit and divide that figure by 365 to arrive at a daily sales turnover.

A) Annual Turnover On Credit = R341,275
B) Days in 1 year = 365
C) Parts Daily Credit Turnover = R935 (A ÷ B)

Discussion:

In the example provided above the average amount of debt is outstanding for a period of 43 days, In many cases, customer credit agreements are for 30 days and all too often these credit terms are not fully instigated and your money is outstanding for longer periods of time. The question is how much longer.

Related Terminology:

Debtor Days (Service Department)

Service Debtors ÷ Service Daily Credit Turnover

Baseline: < 45 days

Description:

The Debtor Days KPI is a measurement of the credit activity within the Service Department. Its purpose is to inform you of the average number of days that your customers take to pay you.

Example:

A) Service Debtors = R80,416
B) Service Daily Credit Turnover* = R1,870
C) Debtor Days = 43 days (A ÷ B)

Note:
In order to calculate the Service Daily Turnover, you will need to take the annualised Service Turnover sold on credit and divide that figure by 365 to arrive at a daily sales turnover.

A) Annual Turnover On Credit = R682,550
B) Days in 1 year = 365
C) Service Daily Credit Turnover = R1,870 (A ÷ B)

Discussion:

In the example provided above the average amount of debt is outstanding for a period of 45 days, In many cases, customer credit agreements are for 30 days and all too often these credit terms are not fully instigated and your money is outstanding for longer periods of time. The question is how much longer.

Related Terminology:

Departmental Expenses (Bodyshop)

Departmental Expenses ÷ Turnover (x100)

Guideline: Own Policy

Description:

Typically, Departmental Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R28,655
B) Semi-Fixed Expenses = R143,272
C) Departmental Expenses = R171,927 (A + B)
D) Department Turnover = R573,088
E) Departmental Expense % = 30% (C ÷ D X 100)

Discussion:

Keeping control of Departmental Expenses can be a difficult task unless you fully understand the difference between Variable expenses and Semi-Fixed Expenses.

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

The Departmental Expenses of the Bodyshop are also know as Direct Expenses and refer to the total expenses incurred. They represent the sum total of the Variable Expenses and Semi-Fixed Expenses.

Departmental Expenses (Parts Department)

Departmental Expenses ÷ Turnover (x100)

Guideline: < 8%

Description:

Typically, departmental Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Gross Profit.

Example:

A) Departmental Expenses = R13,524
D) Total Turnover = R187,836
E) Departmental Expense % = 7.2% (A ÷ B X 100)

Discussion:

Related Terminology:

The Departmental Expenses of the Parts Department are also know as Direct Expenses and refer to the total expenses incurred. As there are no Variable Expenses within the Parts Department, all expenses are therefore Semi-Fixed.

Departmental Expenses (Sales Department)

Departmental Expenses ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Typically, Departmental Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R133,778
B) Semi-Fixed Expenses = R280,326
C) Departmental Expenses = R414,104 (A + B)
D) Department Turnover = R7,432,165
E) Vehicles Sold = 784
F) Total Expenses p/unit = R526 (C ÷ E)
G) Departmental Expense % = 3.7% (C ÷ D X 100)

Discussion:

Keeping control of Departmental Expenses can be a difficult task unless you fully understand the difference between Variable expenses and Semi-Fixed Expenses.

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

The Departmental Expenses of the Sales Department are also known as Direct Expenses and refer to the total expenses incurred. They represent the sum total of the Variable Expenses and Semi-Fixed Expenses.

Departmental Expenses (Service Department)

Departmental Expenses ÷ Turnover (x100)

Guideline: Own Policy

Description:

Typically, departmental Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R18,570
B) Semi-Fixed Expenses = R92,850
C) Departmental Expenses = R111,420 (A + B)
D) Department Turnover = R371,388
E) Departmental Expense % = 30% (C ÷ D X 100)

Discussion:

Keeping control of Departmental Expenses can be a difficult task unless you fully understand the difference between Variable expenses and Semi-Fixed Expenses.

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

The Departmental Expenses of the Service Department are also know as Direct Expenses and refer to the total expenses incurred. They represent the sum total of the Variable Expenses and Semi-Fixed Expenses.

Departmental Profit

Gross Profit ÷ All Departmental Expenses

Baseline: > 12%

Description:

The mathematical formula for Departmental Profit is simply Gross Profit minus Departmental Expenses.

Example:

A) Departmental Gross Profit = R107,539
B) All Departmental Expenses = R82,722
C) Departmental Profit = R24,817 (A - B)

Discussion:

Departmental profit is usually seen as the last line or the bottom line of your financial reports for the Parts Department, hence its colloquial name, "the bottom line".

However, having this figure reported as a monetary value is very nice to see, but in terms of plotting its trend, it is more useful to measure this as a percentage of Turnover.

Example:

A) Departmental Profit = R24,817
B) Turnover = R165,446
C) Departmental Profit % = 15% (A ÷ B X 100)

Related Terminology:

This line is sometimes called Direct Profit, Operating Profit and of course the bottom line.

Departmental Profit % (Bodyshop)

Departmental Profit ÷ Turnover (x100)

Baseline: > 30%

Description:

Departmental Profit is calculated by taking Gross Profit minus Departmental Expenses. To make sense of this figure it is always expressed as a percentage of Turnover when used for trending as it is the direction of travel that is of most interest to you.

Example:

A) Departmental Profit = R183,389
B) Departmental Turnover = R573,088
C) Departmental Profit % = 32% (A ÷ B X 100)

Discussion:

Related Terminology:

The Departmental Profit of the Bodyshop is also called many other things such as, Direct Profit, Operating Profit and of course the bottom line.

Departmental Profit % (Sales Department)

Departmental Profit ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Example:

A) Departmental Profit = R97,208
B) Departmental Turnover = R3,240,233
C) Departmental Profit % = 3% (A ÷ B X 100)

Discussion:

Related Terminology:

The Departmental Profit of the Sales department is also called many other things such as, Direct Profit, Operating Profit and of course the bottom line.

Departmental Profit % (Service Department)

Departmental Profit ÷ Turnover (x100)

Baseline: > 35%

Description:

Example:

A) Departmental Profit = R57,907
B) Departmental Turnover = R165,446
C) Departmental Profit % = 35% (A ÷ B X 100)

Discussion:

Related Terminology:

The Departmental Profit of the Service Department is also called many other things such as, Direct Profit, Operating Profit and of course the bottom line.

Direct Expenses (Bodyshop)

Departmental Expenses ÷ Turnover (x100)

Guideline: Own policy

Description:

Typically, Direct Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R28,655
B) Semi-Fixed Expenses = R143,272
C) Direct Expenses = R171,927(A + B)
D) Department Turnover = R573,088
E) Direct Expense % = 30% (C ÷ D X 100)

Discussion:

Keeping control of Direct Expenses can be a difficult task unless you fully understand the difference between Variable Expenses and Semi-Fixed Expenses.

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

The Direct Expenses of the Bodyshop are also known as Departmental Expenses and refer to the total expenses incurred. They represent the sum total of the Variable Expenses and Semi-Fixed Expenses.

Direct Expenses (Parts Department)

Direct Expenses ÷ Turnover (x100)

Guideline: < 8%

Description:

Typically, Direct Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Direct Expenses = R13,524
B) Total Turnover = R187,836
C) Direct Expense % = 7.2%

Discussion:

Related Terminology:

The Direct Expenses of the Parts Department are also known as Departmental Expenses and refer to the total expenses incurred. since there are no Variable Expenses within the Parts Department, all expenses are therefore Semi-Fixed Expenses.

Direct Expenses (Sales Department)

Direct Expenses ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Typically, Direct Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Keeping control of Direct Expenses can be a difficult task unless you fully understand the difference between Varaible Expenses and Semi-Fixed Expenses.

Example:

A) Variable Expenses = R133,778
B) Semi-Fixed Expenses = R280,326
C) Direct Expenses = R414,104 (A + B)
D) Department Turnover = R7,432,165
E) Vehicles Sold = 784
F) Total Expenses p/unit = R526 (C ÷ E)
G) Direct Expense % = 3.7% (C ÷ D X 100)

Discussion:

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

The Direct Expenses of the Sales Department are also known as Departmental expenses and refer to the total expenses incurred. They represent the sum total of the Variable Expenses and Semi-Fixed Expenses.

Direct Expenses (Service Department)

Direct Expenses ÷ Turnover (x100)

Guideline: Franchise Specific

Description:

Typically, Direct Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Keeping control of Direct Expenses can be a difficult task unless you fully understand the difference between Variable Expenses and Semi-Fixed Expenses.

Example:

A) Variable Expenses = R18,570
B) Semi-Fixed Expenses = R92,850
C) Direct Expenses = R111,420 (A + B)
D) Department Turnover = R371,388
E) Direct Expense % = 30% (C ÷ D X 100)

Discussion:

Variable Expenses are directly linked to sales volume and Semi-Fixed Expenses are not linked to sales volume therefore the actions that you need to take to maintain control is different in each area.

Related Terminology:

The Direct Expenses of the Service Department are also known as Departmental Expenses and refer to the total expenses incurred. They represent the sum total of the Variable Expenses and Semi-Fixed Expenses.

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