Question

Problem 11-17 Comparison of Performance Using Return on Investment (ROI) (LO11-1] Comparative data on three companies in the same service industry are given below. 6.25 points Required: 2. Fill in the missing information. (Round the "Turnover" and "ROI" answers to 2 decimal places.) 8 01:20:49 C Company B $ 1,400,000 $ 154,000 A 4,074,000 651,840 1,940,000 $ $ $ $ Sales Net operating income Average operating assets Margin Turnover Return on investment (ROI) 2,550,000 6% 2.00 % % 5.50 %

Answer 1

Answer:

For Company A:

Margin = Net Operating Income / Sales *100
Margin = $651,840 / $4,074,000* 100
Margin = 16%

Turnover = Sales / Average Operating Assets
Turnover = $4,074,000 / $1,940,000
Turnover = 2.1

Return on Investment = Margin * Turnover
Return on Investment = 16% * 2.1
Return on Investment = 33.6%

For Company B:

Margin = Net Operating Income / Sales * 100
Margin = $154,000 / $1,400,000
Margin = 11%

Return on Investment = Margin * Turnover
0.055 = 0.11 * Turnover
Turnover = 0.055/ 0.11
Turnover = 0.5

Turnover = Sales / Average Operating Assets
0.5 = $1,400,000 / Average Operating Assets
Average Operating Assets = $1,400,000 / 0.5
Average Operating Assets = $2,800,000

For Company C:

Turnover = Sales / Average Operating Assets
2 = Sales / $2,550,000
Sales = $2,550,000 * 2
Sales = $5,100,000

Margin = Net Operating Income / Sales
0.06 = Net Operating Income / $5,100,000
Net Operating Income = 0.06 * $5,100,000
Net Operating Income = $306,000

Return on Investment = Margin * Turnover
Return on Investment = 6% * 2
Return on Investment = 12%