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Characteristics and Financial Ratios of the Wholesale Retail Industry
by Steve McDonnell, Demand Media
As the name suggests, the wholesale and retail industry consists of two groups: wholesalers
and retailers. Wholesalers sell products, such as raw materials or goods for resale, generally
in large quantities to other businesses. Retailers sell products in small quantities to
consumers.
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Retailers sell Employment
goods in small
quantities to As of November 2008, the wholesale and retail trade industries employed more than 21 million
consumers. people, or about 14 percent of the U.S. workforce. The Bureau of Labor Statistics estimates
that the workforce will grow at a rate of 0.4 percent each year through 2018, which is lower
Related Articles than some industries, and will employ approximately 13 percent of the U.S. workforce in 2018.
What Financial Ratios Are Important to the Retail Return Ratios
Industry?
The wholesale and retail trade industry typically uses three ratios to measure return: return on
How to Interpret Financial Ratios
sales, return on assets and return on net worth. In 2008, the average return on sales for the
Four Basic Types of Financial Ratios Used to Measure industry as a whole was 1.3 percent, the average return on assets was 2.2 percent and the
a Company's Performance average return on net worth was 4.39 percent. Return is calculated by dividing operating profit
How to Adjust Industry Averages and Ratios by the measure -- sales, assets or net worth -- and multiplying by 100 to derive a percentage.
How to Take a Wholesale Company to Retail
Related Reading: Key Ratios in the Grocery Industry
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Liquidity Ratios
The industry commonly uses two ratios to measure liquidity: the quick ratio and the current
ratio. The current ratio is calculated by dividing current assets by current liabilities. The quick ratio is calculated by dividing current assets minus
inventory by current liabilities, and is a more conservative estimate of liquidity because some organizations might have difficulty converting inventory into
cash. The average quick ratio in 2008, for the industry as a whole, was 0.62 percent and the average current ratio was 1.36 percent.
Inventory Turnover
The wholesale and retail trade industry generally measures inventory turnover, which is a ratio that reveals how many times a company's inventory is
sold and replaced in a given period of time. Inventory turnover is calculated as sales divided by inventory. A low turnover ratio indicates low sales and
high inventory. A high turnover ratio can indicate high sales but it can also indicate poor buying decisions. In 2008, the average inventory turnover for the
industry was 10.49 percent.
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References (6)
About the Author
Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human
resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business
Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.
Photo Credits
Jupiterimages/Brand X Pictures/Getty Images
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