The effect of “Stock Days” on sales profitability &…

As a result, I have assumed that the stock is 100% funded and that overheads are 60% of GP. All values in light, cursive type with the *asterisk in front, are inputs which can be changed if you want to use your own numbers in this model.

I have included both Return on Sales and Return on Investment in the analysis as they are both relevant measures. Return on Sales is the profit on the vehicle retained after deducting all overheads and interest expressed as a percentage. Return on Investment is the profit on vehicle retained as a percentage of the cost of the vehicle expressed as an annualised percentage – much like the interest you would earn on your bank account.

I don’t think the numbers need too much explanation as they speak for themselves. Given the risk, investment and effort required to run “vehicle sales” it is almost not worth being in the business with a stock holding over 45 days. This model can be applied to individual vehicles which hopefully shows what overage stock really does cost you.

Stock Days	30	45	60	90
Interest Rate	*10%	*10%	*10%	*10%
Monthly Units	*40	*40	*40	*40
Ave Sales Price/Unit	*R500 000	*R500 000	*R500 000	*R500 000
COS/Unit	R460 000	R460 000	R460 000	R460 000
Overhead % of GP	*60%	*60%	*60%	*60%
GP%	*8%	*8%	*8%	*8%
Stock Holding as per Stock Days	R18 400 000	R27 600 000	R36 800 000	R55 200 000
Monthly Interest	R151 233	R226 849	R302 466	R453 699
Interest Per Vehicle	R3 781	R5 671	R7 562	R11 342
GP/Unit Pre Int	R40 000	R40 000	R40 000	R40 000
GP/Unit After Int	R36 219	R34 329	R32 438	R28 658
GP% After Int	7.2%	6.9%	6.5%	5.7%
Overhead /Unit	R24 000	R24 000	R24 000	R24 000
Net Profit/Unit	R12 219	R10 329	R8 438	R4 658
Return on Sales	2.4%	2.1%	1.7%	0.9%
Return on Investment	31.9%	26.9%	22.0%	12.2%
Dept NOP/Year	R5 865 205	R4 957 808	R4 050 411	R2 235 616

If you would like the Excel spreadsheet to input your own numbers or if you have any questions or comments, please WhatsApp me on 0827761887.

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