When it comes to business, it's important to always have a good grasp on how well you're doing. At Wolseley, we get a clear picture of our company's health through the profit and loss statement, otherwise known as a P&L. The P&L includes both revenue and expenses and shows the financial performance of our company over a given period of time.

At Wolseley, the finance team reviews the P&L on an ongoing basis and reports the financial results to our branches each month. On a P&L report, you will find the following categories: Revenue is the amount of sales made to our customers for the current month. Cost of sales is the cost associated with providing our customers the product we sold to them in the month.

While gross profit shows us the profit that remains after our selling costs are subtracted. Gross margin represents how profitable our sales are. Labor costs are costs associated with paying our employees, including benefits and incentives. Operating costs are the expenses associated with running our business, including rent, packing supplies, and marketing costs.

Trading profit is the profit we retain at the end of the day after paying our people and suppliers. And trading margin is the percentage of sales that make it all the way to the bottom line. So how can you positively manage your P&L? Let's take a look at how Kim does it. Kim is a branch manager at Wolseley. She knows how important it is to keep a close eye on the profit and loss and is always looking for ways to improve it.

On the revenue front, Kim is always looking for ways to increase sales to our customers, including upselling and charging for fright whenever possible. With cost of sales, Kim ensures she's properly receiving product and does not have any non-productive inventory at her branch. She increases her overall gross profit and gross margin by selling more of our own brand product, obsolete products, and those with higher all-in margins.

Oh, and she never overrides pricing. Kim manages labor costs effectively by controlling headcount, closely monitoring overtime and temporary labor spends. And she reviews operating costs regularly, looking for ways to reduce costs wherever possible. She keeps a close eye on supplier invoices and reviews her fright reports monthly to ensure charges are accurate. By executing on all of the above, you'll have a positive impact on our trading profit and trading margin and help us reach our goals as a company.

An important measure of a business's financial health is the amount of capital available at any given time to pay for day-to-day operations. The accounting term for this is working capital. At Wolseley, you will also hear working capital referred to as C2C or cash-to-cash. Working capital is comprised of the following: Inventory, what we purchase from vendors to sell to our customers, Accounts receivable, the money we collect from our customers, and Accounts payable, the money we owe to our vendors for things we purchase.

Working capital is calculated with a simple equation: Days of Inventory plus Days Sales Outstanding less Days Payable Outstanding. This gives us a total of working capital. DSO, or Days Sales Outstanding, refers to the average time it takes to collect payments from customers, while DOI, or Days of Inventory, refers to the number of days from when we receive product from a vendor until it is sold to a customer.

At Wolseley, inventory is our largest expense. This means we need to manage it closely. While we need to ensure we have adequate inventory in our branches in DC for sale to our customers, at the same time, inventory purchases tie up company resources. Put simply, if we choose to spend more on inventory, then that leaves less dollars to invest in other assets.

By ensuring that we do not have money tied up in slow-moving and unpopular items, we keep our working capital free for those products that customers do want. So how can you positively manage your inventory costs? Let's take a look at how Olivia does it. Olivia's branch has a high-volume location, but she knows that higher sales equal higher accounts receivable, which has a negative impact on working capital if not collected in a timely manner.

Olivia relies on the Wolseley credit team to collect payments from customers quickly, which frees up cash that she can reinvest in her business for things like inventory. And if a customer does not pay an outstanding amount, Olivia knows that it will be tracked as a bad debt. This shows up as an expense on her P&L and negatively impacts her trading profit.

Olivia keeps a close watch on drivers that will increase her inventory in order to keep her DOI, or days of inventory, low. She works hard to sell her inventory to customers at a good margin and only purchases inventory that is expected to sell, ensuring all orders are shipped and accepted by the required date and not earlier. Olivia returns bad or slow-moving inventory to vendors and booking orders are used to help properly manage allocated orders, minimizing the amount of inventory that is allocated to a sales order and thus unavailable for sale to other customers.

Let's recap. Working capital is calculated with a simple equation: days of inventory, plus days sales outstanding, less days payable outstanding. This gives us our net days of working capital. When we collect money from our customers and tightly manage our inventory, we positively impact working capital. Working capital has an overall impact on the financial health of our company and is something we can all have a hand in improving.

Every day at Wolseley, we make purchases that allow our locations to run smoothly. These are called operating costs and are tracked closely to ensure profitability. Let's take a closer look at what's included in Ordinary Expenses at Wolseley. Under Infrastructure, you'll find costs like rent, property taxes, utilities, and repairs and maintenance.

Distribution is split into two categories: owned truck costs and third-party carrier usage for customer deliveries. Infotech includes computer equipment, software licenses, and communication costs. Marketing includes advertising costs, merchandising costs, marketing and networking events like trade shows. Staff costs includes employee expenses related to travel, meals and entertainment, recruitment, and training costs.

While general and admin includes credit card charges, office supplies, postage, photocopy charges, and printing. Now let's take a closer look at those costs that you can control at a branch level. Controllable staff costs are things like training, meetings, meals and entertainment, and travel. Infrastructure costs are anything related to the maintenance and repair of your building, as well as utilities.

Controllable distribution or fleet costs include delivery truck costs and outside carriers who deliver our packages to customers. I.T. costs are expenses related to information technology systems and communications. And marketing costs are an important expenditure to highlight our brand, including things like ad buys, promo materials, and memberships.

Finally, general and admin costs are those you incur as part of daily operations that do not contribute directly to the making of a product or delivery of a service. So how can you positively manage your operating costs? Let's take a look at how Sandy does it. Sandy is a motivated branch manager at Woolsey. She's mindful of discretionary spending and ensures costs are in line with financial results wherever possible.

Sandy considers alternatives to traditional travel. She often conducts training or meetings online or through video conferencing. And when she does have to travel, she books through our Concur travel program for the best prices. Sandy works hard to keep infrastructure costs tight by being energy efficient and environmentally friendly and limiting waste so there's less garbage for pickup.

When she has to make a repair or needs maintenance, Sandy uses preferred vendors and only purchases items on an as-needed basis. When it comes to distribution, Sandy only uses preferred vendors and freight carriers. And she keeps I.T. costs lower by taking advantage of Wi-Fi on corporate phones, managing her data usage during travel, and only ordering new equipment like computers and phones when absolutely necessary.

Her marketing spend is reasonable and in line with profit expectations. And she manages her general costs by keeping a close eye on printing, minimizing branch catering, and being mindful of paper usage. To recap, operating expenses directly impact trading profit and flow-through. At the branch level, you have control over a number of costs.

You can have a positive impact by being mindful of discretionary spending, using preferred vendors, and looking for low-cost alternatives wherever possible. When operating costs are closely managed, we increase our trading profit and improve our flow-through as a company.

Growing our top-line revenue is an important part of our business. However, we need to do so profitably and in an efficient manner. This requires a lot of hard work and goes hand-in-hand with controlling our expenses. Enter Flowthrough, a metric that shows how efficiently we are translating gross profit into trading profit dollars.

Flowthrough is a measure of how much of our year-over-year gross profit dollars increase flows through to our overall earnings after expenses. It represents what portion of our additional sales and gross profit isn't eaten up by additional expenses and actually flows through to the bottom-line trading profit. As a calculation, it is simply defined.

Flowthrough equals trading profit current year minus trading profit prior year divided by gross profit current year minus gross profit prior year. Let's take a look at an example. In January 2018, Roberts Branch had a gross profit of $100 on sales of $300. After he paid for rent, employees, and utilities, Robert had $25 left as his trading profit.

In this January 2019, Robert was able to generate $100 extra in sales, which translated to $25 extra in gross profit, but did not cost us anything additional in labor, utilities, or freight. Robert's trading profit increased by $25 from January 2018 to January 2019. But what is the flow-through percentage on this amount?

Let's do the calculation. Robert's 2018 trading profit less his current trading profit divided by his prior gross profit gives us 100%. If we are able to add sales that create a positive gross profit while keeping our labor and other costs flat, or less than increased gross profit, then we will see a positive flow-through number.

So how can you control costs and increase flow-through? Let's take a look at how Patel does it. Patel is one of Woolsey's top branch managers. He knows that he can control three things that impact our flow-through percentage. Sales, gross profit, and cost control. Patel knows that profitable sales are the basis for flow-through.

By maintaining pricing discipline, charging fright, and focusing on strong margin products, especially own brand, Patel grows his gross profit. He also knows that it's important to not grow his cost base at the same rate as his sales and margin. By keeping his labor, fleet, utilities, and marketing costs under control, Patel's increased sales will translate to better trading profit.

For labor costs, Patel regularly reviews the need for overtime and temporary labor. He keeps a tight grip on other costs like warehouse and packing supply expenses by only ordering what he needs. And he reduces infrastructure costs like utilities by turning off lights when they're not in use and closing bay doors. By closely managing flow-through, you will efficiently translate gross profit into trading profit dollars, making us more successful as a team and as a company.

At Wolseley, we're fortunate to have a dedicated team of high-performing employees who work hard every day to make us a success. Labour is an important part of our business and is also one of the expenses we have the most control over. Let's take a closer look at what's included in labour costs at Wolseley. Standard employment costs represents the total cost of base salary, temporary labour and overtime.

Other non-discretionary benefits includes employee health benefits, as well as other mandatory deductions like CPP and EI. Automobile and Car Allowance represents monthly car allowances for applicable employees, while Total Pension Costs is the monthly cost for all employee pensions. Total Bonus is the monthly accrual for MIP and PSP bonus costs.

And Total Commission represents the monthly cost of sales commissions for applicable employees. Now let's take a closer look at those costs that you can control at a branch level. Standard employment costs include base labour, temporary labour and overtime. You have control over these at the branch level. Base labour is the largest portion of employment costs and needs to be managed closely.

Temporary labour refers to those employees that are hired through a staffing agency. Temp labour is more expensive than hourly employees and increases overall labour costs. Finally, overtime refers to any hours worked by an employee that exceed their normally scheduled working hours. So how can you positively manage your labour costs?

Let's take a look at how Alex does it. Alex manages a busy Woolsey branch. He uses all three types of labour at his location and keeps a close eye on labour costs to ensure profitability. When it comes to temporary labour, Alex manages employee vacancies wherever possible and only uses temporary labour for short periods of time in emergency situations.

When temp labour is brought in, Alex remembers to have it approved by the finance business partner, HR business partner and general manager and quickly submits invoices to accounts payable. When it comes to overtime, Alex has a multi-pronged approach. He is proactive, addressing workload challenges as they arise and clearly communicating expectations to employees.

He also cross-trains employees so more can contribute to key projects and cover temporary labour shortages. When overtime is needed, Alex remembers to have it approved in advance and tracks it closely. This allows him to see and address overtime patterns branch-wide and at the individual employee level. The following metrics are included in your monthly financial reports.

They are reviewed regularly by management and are used to benchmark performance. Sales per employee is the total amount of sales divided by the total number of employees. The higher this number, the better. PPR represents labour as a percentage of gross profit. The lower this percentage, the better. Labour as a percentage of sales is a ratio representing the cost of labour as a percentage of sales.

Since labour is a cost, we want to keep this ratio as low as possible, while still providing great service to our customers. FTE, also known as full-time equivalent, is a calculation based on the numbers of hours worked by each employee. An employee working 8 hours per day, for an entire month, equals 1 FTE. To recap, labour is an important part of our business, and one of the expenses we have the most control over. When labour costs are closely managed, we increase our trading profit and improve our flow-through as a company.

As we monitor our business performance, two areas where you can have the biggest positive impact are sales and margin. Let's review some key performance indicators, or KPIs. Sales per day represents the average daily sales for a given month. It is calculated by taking the total sales for a month and dividing it by the number of working days in the month.

Growth percentage represents the year-over-year change in sales. Organic growth percentage is the internal growth rate or growth from existing businesses, excluding acquisitions. This metric normalizes for changes in sales days year-over-year. Sales per employee is the total amount of sales divided by the total number of FTEs.

Now let's turn our attention to margin, what it is and how it's calculated. Gross profit is the total amount of sales minus the cost of sales. And gross margin is gross profit divided by the amount of sales. To calculate our gross margin, we need to start by determining gross profit. Let's look at an example. Hero sells a product for a dollar.

That product costs 75 cents to procure, so his gross profit is 25 cents. If Hero takes that 25 cents profit and divides it by 100, that leaves him with 25% gross margin. At Woolsey, we watch our gross margin closely. There's another metric that is equally important to manage, and that is system margin. Simply put, system margin is the difference between what we sell an item for and what we buy an item for.

Let's look at an example. Bob makes a sale of $100. Product costs were $75, so his system margin is $25. Bob's gross margin for the same sale includes the system margin of $25 that he made, as well as a number of other components, such as inventory adjustments, gross profit adjustments, rebates, and inbound delivery. Let's look at these in more detail.

An inventory adjustment is a change to the general quantity. For example, Jane is about to sell a copper fitting to a customer. While our inventory says there are two in stock, when she checks the shelf, she only finds one. Jane would then do an adjustment to correct this discrepancy. Gross profit adjustments include branch-level transactions that have an impact on gross profit.

Each of these has the potential to negatively impact the gross margin at your branch. Rebates represent the amount of money we get back from vendors for the purchase of specific products. With inbound delivery charges, there are two expenses you can help control: Fright Actual, included in this expense are invoices received from our freight carriers for product delivered to our Woolsey branches, and Interbranch Fright.

This expense represents the freight we are charged by carriers for deliveries between Woolsey branches. The receiving branch is responsible for paying this freight bill. In cases where there is a dedicated shipment from the RDC, the RDC pays the freight. With all of these factors in mind, let's return to our original example.

Bob made a sale of $100. The product costs were $75, so his system margin is $25, and his system margin percentage is 25%. Bob's gross margin for the same sale includes the system margin of $25, plus the following: Inventory adjustments, gross profit adjustments, rebates, and inbound delivery. When added together, our total gross margin is $30.

So how can you positively manage your sales margin? Let's take a look at how Yen does it. Yen is the manager of a top-performing branch at Woolsey. Yen realizes that even the smallest of adjustments have the potential to make a large impact on gross margins. Yen works hard to be accurate with her counts, and always reports any adjustments in a timely manner.

She manages her inventory effectively by bringing in products her customers want, so that there's a lower likelihood of a product becoming obsolete or scrapped. If she does have an obsolete product, Yen tries to sell it wherever possible. She always charges a restocking fee for customer returns, especially on non-list items, and works to sell products that come with higher vendor rebates.

She also ensures she never overrides pricing. To recap, there are a multitude of ways to positively impact our gross margins at Woolsey. A few to take away: control inventory, charge right, sell higher rebate products, don't override pricing, and sell obsolete and own brand stock. With your help, we will increase our gross margins and achieve focused, profitable growth at Woolsey.