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G

Gearing %

Gearing %

Interest-Bearing Borrowings ÷ Funds Employed x100

Benchmark: < 60%

Description:

This version of Gearing measures the relationship between how much of the Funds Employed are owed in interest-bearing borrowings.

Generally speaking, a bank manager is relatively happy to maintain Gearing at 50%. This means that for every R1 that you have invested in the business, the Bank manager will also invest R1.

Both of these versions of Gearing generate the same answer, albeit in a different way. However, the net result is the same.

Example:

A) Interest-Bearing Borrowings = R4,541,263
B) Funds Employed = R9,883,926
C) Gearing Percentage = 46% (A ÷ B X 100)

Discussion:

The example above is stating that 46% of the money invested in the business is from loans and therefore the remaining 54% is the owner's funds.

Related Terminology:

Gearing Ratio

Gearing Ratio

Interest-Bearing Borrowings ÷ Net Worth

Benchmark: < 1.4:1

Description:

The term gearing is all about the relationship between the level of Equity in a business and the amount of money that is currently being borrowed.

Generally speaking, a bank manager is relatively happy to maintain Gearing at 1:1. This means that for every R1 that you have interested in the business, the bank manager will also invest R1.

When Gearing goes over and above 1:1 this is the time when you may experience increasing pressure from the bank to replay some of your loans. After all, the bank does not want to put more money into your business than you have invested yourself.

Example:

A) Interest - Bearing Borrowings = R4,541,263
B) Net Worth = R5,342,663
C) Gearing Ratio = 0.8:1 (A ÷ B)

Discussion:

There are two different ways of expressing Gearing, this method provides you with a Gearing Ratio; the other provides you with the Gearing%. Although both KPI are called Gearing, they do measure slightly differently.

Related Terminology:

Gross Profit (New Vehicles)

Gross Profit (New Vehicles)

Invoice Price of Vehicle x Cost Price of Vehicle

Guideline: Franchise Specific

Description:

The basic understanding of Gross profit is simply sales less the cost of those sales. Within the Sales Department there are many things that are sold that are all contained on the sales invoice such as accessories, warranty and of course the vehicle itself.

Take care to understand exactly what your reports are including and excluding from this equation. Generally speaking, most reports will show all of these items separately, especially the Gross Profit in the vehicle.

Example:

A) Vehicle Sale Price = R18,268
B) Vehicle Cost Price = R17,719
C) Vehicle Gross Profit = R549 (A X B)
D) Gross Profit % = 3% (C ÷ A X 100)

Discussion:

There is no benchmark for this KPI because profit retention is very different in all vehicle marques. There is however, one item that needs to be quantified.

When your franchise manufacturer provides you with a tactical bonus payment, is this bonus included or excluded from the vehicle Gross Profit? Also see Target Related Bonus.

The reality is that there is no hard and fast rule for this one and therefore you will need to research your own reports before you draw any conclusion on your results.

Related Terminology:

Gross Profit (Used Vehicles)

Gross Profit (Used Vehicles)

Invoice Price of Vehicle X S.I.V. of Vehicle

Baseline: >10% of Invoice Price

Description:

This KPI establishes the amount of Gross Profit that you retain in your used vehicles, this is usually after the deduction of V.A.T. where applicable and before any expenses such as Reconditioning Costs and Sales Commission payments are taken into account.

Example:

A) Vehicle Sale Price = R14,500
B) Vehicle S.I.V. = R12,679
C) *Vehicle Gross Profit = R1,821 (A X B)
D) Gross Profit % = 12.56% (C ÷ A X 100)

Discussion:

The price that you paid for the vehicle may not be the same as the stand in value (S.I.V) due to the Write Down and write back policies and procedures of your business.

In any event, the value of Gross Profit that you retain from your used vehicles should be greater than 10% of the invoice price. (Not to be confused with the display price on the windscreen)

You need to retain sufficient margin here to pay for all of the Variable and Semi-Fixed Expenses and still have enough left over to make a contribution to Direct Profit.

Related Terminology:

Gross Profit % (Bodyshop)

Gross Profit % (Bodyshop)

Gross Profit ÷ Turnover (x100)

Baseline: >45%

Description:

Within the Bodyshop there are two levels of Gross Profit that are measured; be sure that you are measuring the results that you really want.

The basic concept of Gross Profit is simply sale less cost of sale, therefore the following example relates to the Bodyshop as a whole.

The trading strategy of your Bodyshop will have an impact upon the suggested baseline of 45% and will vary according to the level of insurance work that your business undertakes.

Example:

A) Total Gross Profit = R107,540
B) Turnover = R165,446
C) Gross Profit % = 65% (A ÷ B X 100)

Discussion:

Financial reports for the Bodyshop show Gross Profit on Labour Sales before they show the total Departmental Gross Profit; this page is explaining the overall Departmental Gross Profit within which Labour Gross profit is included.

The Gross Profit% of a Bodyshop has a tendency to be lower than that of the Service Department because of lower Recovery Rates and higher Productive Labour costs.

Related Terminology:

(Also see Labour Gross Profit)

Gross Profit % (Servive Department)

Gross Profit % (Servive Department)

Gross Profit ÷ Turnover (x100)

Baseline: >65%

Description:

Within the Service Department there are two levels of Gross Profit that are measured; be sure that you are measuring the results that you really want.

The basic concept of Gross Profit is simply sale less cost of sale, therefore the following example relates to the service department as a whole.

The trading strategy of your Service Department will have an impact upon the suggested baseline of 65% and will vary according to the level of discount that you give, Sub Contract work and oil sales that your business conducts.

Example:

A) Total Gross Profit = R107,540
B) Turnover = R165,446
C) Gross Profit % = 65% (A ÷ B X 100)

Discussion:

Financial reports for the service Department show Labour Gross profit before they show the total Departmental Gross Profit; this page is explaining the overall Departmental Gross Profit within which Labour Gross profit is included.

Related Terminology:

(Also see Labour Gross Profit)