Question

A company’s shipping division (an investment center) has sales of $2,560,000, net income of $844,800, and average invested assets of $2,048,000. Compute the division’s profit margin and investment turnover.

Answer 1

Answer:

Profit Margin = 33%

Investment Turnover = 1.25 times

Explanation:

Shipping division's profit margin = $\frac{Net\:Income}{Net\: Sales} \times 100$

Here, we have Net income = $844,800

Sales = $2,560,000

Therefore profit margin = $\frac{844,800}{2,560,000} \times 100 = 33$

Profit margin = 33%

Investment turnover = $\frac{Net\: Sales}{Average\: Invested\: Assets}$

Net Sales = $2,560,000

Average invested assets = $2,048,000

Investment turnover = $\frac{2,560,000}{2,048,000} = 1.25$

Therefore,

Profit Margin = 33%

Investment Turnover = 1.25 times