Financial Management for Sales Managers

This assignment covers finance for sales managers, including gross profit margin calculation, net profit ratio, return on capital employed, and bonus systems. It also discusses the effectiveness of budget setting and management, as well as credit policy letters. The assignment provides formulas and examples from companies like Apple, Walmart, and Coca-Cola to illustrate key concepts.

Finance for Sales Managers
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Task 1: Training Notes
The calculation of gross profit margin is done using the formula below:
Gross Profit Margin = (Sales – Cost of Goods Sold)/Sales
Company name
(2016)
Gross Profit Margin (%)
Apple 39.40
Walmart 24.6
Coca-Cola 60.43
These results show that the company has these percentages of revenues left with them after
the removal of all the direct costs (Kaplan and Atkinson, 2015). The left over amount can
now be utilized in other areas such as operating expenses, paying dividends.
Net profit ratio is calculated using following formula:
Net Profit Margins = Net Profits after Taxes/Sales
The Apples NPM was 19.24% in the third quarter of 2016. It shows the financial health of
the company. The 19.24% profit margin shows that the company earns 19.24 cents on every
dollar it collects. For amazon it was 2.57% and for Coca-cola it was 9.84%.
Return on capital employed is calculated using following formula:
ROCE = Earnings before Interest Tax (EBIT)/Capital Employed
It shows the efficiency with which the capital is employed.
Company Name ROCE (%)

(2016)
Apple 4.73
Amazon 2.06
Coca-Cola 23.42
Margin refers to difference between the sales and cost of goods sold, and markup is the
increase in the price of the product to get selling price. Margin should be used for prices
change over time and margin is for instant.
Task 2: Effectiveness of Budget Setting and Management
Some of the options available for budget setting are percentage method, goal-and-task
method, competitor based method, zero method and others. The method that is used in my
organization is the goal and task method. In this, the estimation is done based on what is to be
achieved and the current costing available for them (McDonald, 2016). This method is
suitable as it is practical and considers the market rates and present situation rather than
hypothetical situations. This helps set contingencies for expected future risks. The common
variance causes are delay in completion, price increase of collaterals, and others. These
variances can be managed by keeping contingencies. The budget setting and management
helps pre-define the amount to be invested which sets the premise for performance and keeps
things on track. The performance information can be provided to others through formal report
development and dissemination or through regular mail delivery to the concerned parties. The
actual investment can be tracked constantly with the estimated budget to track any major
deviation.
Task 3: Bonuses for the Current Sales Force

The sales bonus system is used to ensure that the sales staffs stay motivated towards
achieving their target. This system is best suited for the individuals who get motivated by the
monetary awards; however for the rest this makes limited sense. The common method of
setting bonuses are straight salary, salary plus bonus, base plus compensation, straight
compensation, variable compensation, and others. The current bonus system is base plus
compensation. In this employees are paid fixed amount salary and then further commission
based on sales (commission is percentage of salary). For example, if an individual earn $1000
as base pay, then sale of each new product will be 2% of his salary. The impact on the gross
profit, net profit, and return on capital employed can be two ways. On one hand, it can be
seen as an expense and thus loss for the company. However, as the bonus is used to motivate,
so sales will increase and thus overall gross profit, net profit, and ROCE (Healy, 1985). The
bonuses should be calculated using the number of sales completed by the individual and the
percentage benefit earned by the company. The percentage should be on the size of the
product and the frequency with which it sells in the market, for example real estate assets see
slow sales in comparison to bed-sheet sale. Considering the criteria, straight salary is the
method with fixed bonus, and is not appreciable as it provides no motivation. Variable
commission is also not good as there are not fixed salary and thus might leave staff out of
money for particular month. Straight commission is also not good as most criteria matches
with the variable commission method.
Task 4: Credit Policy Letter
To
Finance Director,
XYZ Company
Dear Mr. Williams,

We are glad to know that you have agreed to engage with us on the sales of 5,000 units of
ABC. Given below are some of the important credit policies of our company. We have also
attached detailed credit policy document with this letter.
Key points from credit policy
- All the payments must be made within six months of credit.
- 10% of the amount need to be paid in advance
Credit-worthiness assessment
Your previous financial data, credit rating, and individual principles will be assessed to
understand the credit worthiness. We hope you will be supportive on this aspect.
Credit approval process
The credit will be approved within a week after assessment of credit worthiness assessment.
Credit limits
We can credit you products not above 5000 units, that is, $100,000. The credit limits will be
electronically monitored. There is no provision for exceeding the credit limit.
Best Regards,
Bob,
Finance Manager
ABC Company.

References
Healy, P.M., 1985. The effect of bonus schemes on accounting decisions. Journal of
accounting and economics, 7(1), pp.85-107.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
McDONALD, M.A.L.C.O.L.M., 2016. 5 Strategic marketing planning. The marketing book,
p.86.