Unlocking Automotive Wealth for a Secure Retirement
Eleanor inherited a complex portfolio including investments related to her late husband's automotive dealerships. She lacked the expertise to assess the profitability and capital efficiency of these investments, particularly regarding floor plan financing, F&I income optimization, used car inventory turn, and service department profitability. Her primary concern was generating sufficient income while preserving her capital.
Using the Return on Capital Employed (ROCE) calculator, we analyzed the dealerships' financial performance. This revealed that one dealership, while appearing profitable on the surface, had a low ROCE of 8% due to inefficient capital utilization, particularly in its used car inventory. By strategically shifting a portion of her IRA (approximately $300,000) to a more efficient dealership with a ROCE of 15%, we projected an increase in annual income of approximately $75,000.
The ROCE calculator requires input of Earnings Before Interest and Taxes (EBIT) and Capital Employed (Total Assets - Current Liabilities). We pulled data from dealership financial statements to populate the calculator. We used sensitivity analysis to determine the optimal allocation amount, considering Eleanor's risk tolerance.
$75,000 annual income increase, improved capital efficiency, and enhanced portfolio diversification.
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