Answer:
See Below.
Explanation:
The following formulas can be used to calculate performance measures.
Profit margin = Net operating income / Sales
Asset turnover = Sales / Total assets
Return on Assets = Profit Margin * Asset Turn over
Now we calculate these for the two models.
Retail Stores
Profit Margin = 155,000 / 400,000 = 38.75%
Asset turn over = 400,000 / 300,000 = 1.33 times
Return on assets = 0.3875 * 1.33 = 0.5153 or 51.54%
Online Shop
Profit Margin = 29,000 / 100,000 = 29%
Asset Turn over = 100,000 / 40,000 = 2.5 times
Return on Assets = 2.5 * 0.29 = 0.725 or 72.5%
The online business shop seems to have higher performance and profitability. A limited amount of assets are able to yield high profit and turn over percentages. A higher volume of sales however, is derived from in store shops and even Retail stores are highly profitable. Expenses are consistent for both models but the assets invested to generate these figures are the main contrast in these models. Online shop only requires asset commitment of $40,000 to generate higher figures whereas retail stores needs higher asset commitment and hence this could be the essential relevant point for future expansion decisions.
Hope that helps.
