Question

Sherwin-Williams is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 21% target rate of return. Read the requirements. A - Data Table X A Requirements X - The company is segmented into five divisions: Paint Stores (branded retail location), Consumer (paint sold through stores such as Sears, Home Depot, and Lowe's), Automotive (sales to auto manufacturers), International, and Administration. The following is selected hypothetical divisional information for the company's two largest divisions: Paint Stores and Consumer (in thousands of dollars). Sales Operating Income Paint Stores... $ 4,000,000 $ 440,000 Consumer ....$ 1,300,000 $ 221,000 Total Assets $ 1,250,000 $ 2,600,000 Round all calculations to two decimal places. 1. Calculate each division's ROI. 2. Calculate each division's sales margin. Interpret your results. 3. Calculate each division's capital turnover. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. 5. Calculate each division's RI. Interpret your results and offer recommendations for any division with negative RI. Total asset data were provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pros and cons of those choices. Describe some of the factors that management considers when setting its minimum target rate of return. 8. Explain why some firms prefer to use Rl rather than ROI for performance measurement. 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers. Print Print Done Done

Answer 1

	As per HOMEWORKLIB RULES we can only answer the 1st 4 subparts of the question but I am solving the 1st 5 questions
	as all are interlinked
1	Return on Investment = Net Operating Income
	Average Invested Assets
		Numerator	Denominator	ROI
	Paint Stores	$4,40,000	$12,50,000	35.2000%
	Consumer	$2,21,000	$26,00,000	8.5000%
	Since Paint stores ROI is higher hence it generates more return.
2	Profit margin ratio = Net Operating Income
	Net sales revenue
		Numerator	Denominator	Profit margin
	Paint Stores	$4,40,000	$40,00,000	11.0000%
	Consumer	$2,21,000	$13,00,000	17.0000%
	Consumer's Profit margin ratio is higher than paint stores
3	Asset Turnover ratio = Net Sales Revenue
	Average Invested Assets
		Numerator	Denominator	Asset Turnover
	Paint Stores	$40,00,000	$12,50,000	3.2000
	Consumer	$13,00,000	$26,00,000	0.5000
4	ROI =Asset Turnover ratio*Profit margin Ratio
		Paint stores	Consumer
	Profit margin Ratio(a)	11.0000%	17.0000%
	Asset Turnover ratio(b)	3.2000	0.5000
	ROI(a*b)	35.2000%	8.5000%
5		Paint stores	Consumer
	Net Operating income	$4,40,000	$2,21,000
	Average operating assets	$12,50,000	$26,00,000
	Average operating assets*21%	$2,62,500	$5,46,000
	Residual Income	$1,77,500	-$3,25,000