Question

Profit Margin, Investment Turnover, and ROI Briggs Company has operating income of $56,496, invested assets of $214,000, and sales of $470,800. Use the DuPont formula to compute the return on investment. If required, round your answers to two decimal places.
a. Profit margin %
b. Investment turnover
c. Return on investment %

Answer 1

Answer:

a. Profit margin = Operating income/Sales x 100

                         = $56,496/$470,800 x 100

                         = 12%

b. Investment turnover = Turnover/Investment

                                      = $470,800/$214,000

                                      = 2.2 times

c. Return on investment(ROI) = Profit margin x Investment turnover

                                               = 12 x 2.2

                                               = 26.4%

Explanation:

Profit margin is the relationship between operating income and sales.

Investment turnover is the relationship between sales(turnover) and investment.

Return on investment is the product of profit margin and investment turnover.