Optimizing investments in a volatile market
Family Ford's profitability was squeezed due to high floor plan financing costs and inconsistent F&I income. They struggled to accurately measure the true profitability of each department and identify areas for improvement amidst complex financial dynamics, resulting in missed opportunities and potentially suboptimal investment decisions.
Using the Residual Income Calculator, the Patels determined that their used car inventory investment generated significantly less income than their cost of capital, revealing a $75,000 deficit. Further analysis with the Times Interest Earned Ratio Calculator highlighted their vulnerability to interest rate hikes, prompting a renegotiation of floor plan financing that unlocked $100,000 in savings. This allowed them to reallocate capital into higher-yielding areas of the business.
Data from the dealership's accounting system was integrated into the Residual Income and Times Interest Earned Ratio calculators to provide a clear and actionable view of the financial performance. The insights were then used to refine their inventory management and financing strategies.
$175,000 in increased residual income and cost savings over one year.
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