Question

em Industries is a division of a major corporation. Last year the division had total sales of $23,800,000, net operating income of $2,903,600, and average operating assets of $7,000,000. The company's minimum required rate of return is 16%. Required: a. What is the division's margin? (Round your percentage answer to 2 decimal places.) b. What is the division's turnover? (Round your answer to 2 decimal places.) c. What is the division's return on investment (ROI)? (Round percentage your answer to 2 decimal places.)

Answer 1

Answer:

(a) 12.20%

(b) 3.40 times

(c) 41.48%

Explanation:

(a). The formula of division's margin is shown below:

It shows a ratio of net operating income and total sales

= Net operating income ÷ total sales

= $2,903,600 ÷ $23,800,000

= 12.20%

(b) The formula of division's turnover is shown below:

It shows a ratio of  total sales and average operating assets

= Total sales ÷ Average operating assets

= $23,800,000 ÷ $7,000,000

= 3.40 times

(c) The formula of division's return on investment is shown below:

It shows a ratio of net operating income and average operating assets

= Net operating income ÷ average operating assets

= $2,903,600 ÷ $7,000,000

= 41.48%

Hence,

(a) 12.20%

(b) 3.40 times

(c) 41.48%