Making the Metric

How the real and the make-believe collect, measure and analyze data.

Abbey Lewis, Editor in Chief, CSProducts

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In a breakout session designed, as moderator Tom Kelso of Matrix Capital Markets Group described, “to take financial concepts and apply them to your business,” retailers traded stories and philosophies on business practices and benchmarking. Panelists Jon Stewart, president and CEO of Tri Star Marketing, a family-run company with 54 stores in Illinois and Indiana, and Rocky Dewbre, executive vice president of Susser Holdings and president and COO of Susser Petroleum Co. LLC, shared their viewpoints on performance measurement; both were surprisingly similar for a private firm and a public one.

To further illustrate different benchmarking methods, Spencer Cavalier, Matrix director, created an example of two privately held companies. Following is how the real and the make-believe collect, measure and analyze data.

Helpful Hints

Many financial analysts will capitalize operating leases to better compare two similar companies with different accounting practices; however, if you are not knowledgeable of all of the facts, it is unrealistic to adjust properly.

Shareholders focused on building “exit value” are concerned with how certain investments and operating approaches will result in value when the sale of an asset is ultimately recognized.

Many companies use the concepts of terminal value and modified IRR measurement as a primary benchmark upon which to make long-term decisions that affect shareholder value.

The different methods of lease accounting can greatly affect the outcome of select performance measurement ratios.

Source: Matrix Capital Markets Group

The Metrics, Defined

Liquidity: Assets that can be quickly turned to cash, such as equipment, buildings or real estate.

Leverage: The amount of debt used to finance a retailer’s assets, or the ratio of debtor equity in a company’s capital structure. Highly leveraged companies will have high debt-to-equity ratios, meaning a high level of interest charges.

Returns on invested capital and equity: Return on equity measures a retailer’s profitability by identifying how much profit it can earn with the money shareholders(or owners) have invested. Basically, it measures how well a company used reinvested earnings to generate additional earnings.

EBITDA: Net income with interest, taxes, depreciation and amortization added back to it. These metrics offer a good way of comparing companies across industries and within industries because financing effects are not factors.

Terminal value: The projected value of an asset on a certain date in the future. It is often used to study cash flow projections over a multiple-year period.

IRR: Internal rate of return. Rate of return used in capital budgeting to determine and analyze the profitability of investments.

Notable Quotables

“If I want it to look good, I place a terminal value on it.”Stewart, joking, when asked how he determined return on capital goals for new store development or acquisition

“We have extensive business planningprocesses. … We have very detailed monthly and quarterly meetings on how we’re performing.”Rocky Dewbre, in reference to how public quarterly reporting affects his company’s benchmarking process

“We are constantly benchmarking ourselves.… We’re fairly regimented for a privately owned company. But it’s worked for us.”Stewart, while discussing his position as a third-generation c-store operator

“No matter how large[a company] is, there are limitations on theamount of capital you can deploy.”Tom Kelso, while discussing the allocation of capital between wholesale and retail

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