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For Wal-Mart, if they spend $1, how many dollars worth of merchandise do they have to sell to make back that one dollar?

User LittleK
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1 Answer

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Final answer:

Wal-Mart must generate $4 in sales to make back a $1 expense assuming a 25% gross margin. This is based on the concept of gross margin, which is the difference between sales revenue and the cost of goods sold.

Step-by-step explanation:

To determine how much Wal-Mart needs to sell in merchandise to make back the $1 spent, one must understand the concept of the gross margin. Gross margin is the difference between the cost of goods sold (COGS) and the sales revenue.

Assuming Wal-Mart has a gross margin of 25%, for every dollar spent ($1), Wal-Mart needs to generate $4 in sales to maintain its margin and recoup the dollar spent.

This can be explained with a simple calculation: if you spend $1 and you want to make that dollar back plus some profit, and assuming your profit is 25% of your sales, then you need to sell merchandise worth $1 divided by 25% (or 0.25) to make back your $1. In this case, $1 / 0.25 equals $4 in sales to recoup the original dollar with the assumed profit margin.

Remember, this is a simplified example and does not take into account the operating expenses or other costs Wal-Mart may have. Actual calculations in practice would require a detailed analysis of Wal-Mart's financials.

User Danyl Semmache
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