Question

Margin, Turnover, Return on Investment, Average Operating Assets

Elway Company provided the following income statement for the last year:

Sales	$1,040,000,000
Less: Variable expenses	700,250,000
Contribution margin	$ 339,750,000
Less: Fixed expenses	183,750,000
Operating income	$ 156,000,000

At the beginning of last year, Elway had $28,300,000 in operating assets. At the end of the year, Elway had $23,700,000 in operating assets.

Required:

1.  Compute average operating assets.
$fill in the blank 1

2.  Compute the margin (as a percent) and turnover ratios for last year.

Margin	fill in the blank 2 %
Turnover	fill in the blank 3

3.  Compute ROI as a percent.
fill in the blank 4 %

Answer 1

1. Calculation of operating income

formulae:

operating income = sales - operating expenses

= $ 4,887,000 - $ 4,525,000

= $ 362,000

2. Calculation of margin (%) and turnover ratio

margin (%)

formulae:

margin (%) = profit or operating income / sales * 100

= $ 362,000 / $ 4,887,000 * 100

= 7.4 %

turnover ratio ( with average operating assets)

formulae:

sales / average operating assets

= $ 4,887,000 / $ 4,610,000

= 1.0 times

NOTE :* the above answer is actualy 1.06 times , if upward rounding is done it becomes 1.1 times , in case decimal restricted to one decimal point it becomes 1.0 times

3. Calculation of ROI

formulae:

net profit or net operating income / average operating assets * 100

= $ 362,000 / $ 4,610,000 * 100

= 7.85 %