Question

Gabbe Industries is a division of a major corporation. Last year the division had total sales of $32,948,550, net operating income of $4,069,146, and average operating assets of $9,027,000. The company's minimum required rate of return is 22%.
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. Division's margin = Net operating income / Total sales

Division's margin = $4,069,146 / $32,948,550

Division's margin = 0.1235000

Division's margin = 12.35%

b. Division's turnover = Total sales / Average operating assets

Division's turnover = $32,948,550 / $9,027,000

Division's turnover = 3.65 times

c. Division's return on investment = Division margin * Division turnover

Division's return on investment = 12.35% * 3.65 times

Division's return on investment = 45.08%