Ace Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint Stores (branded retail locations), Consumer (paint sold through home improvement stores), Automotive (sales to auto manufacturers), International, and Administration.
1. Calculate each division's ROI. Round all of your answers to four decimal places.
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2. |
Calculate each division's profit margin ratio. Interpret your results. |
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3. |
Calculate each division's asset turnover ratio. Interpret your results. |
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4. |
Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. |
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5. |
Calculate each division's RI. Interpret your results, and offer a recommendation for any division with negative RI. |
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6. |
Describe some of the factors that management considers when setting its minimum target rate of return. |
The following is selected divisional information for its two largest divisions: Paint Stores and Consumer.
Management has specified a 21% target rate of return.
|
Net Sales |
Operating |
Average |
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|
Revenue |
Income |
Total Assets |
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|
Paint Stores |
$3,970,000 |
$480,000 |
$1,390,000 |
|
Consumer |
1,300,000 |
190,000 |
1,585,000 |
| Profit Margin | |||||||
| Particulars | Choose Numerator | / | Choose denominator | = | Profit Margin | ||
| Details | Amount | Details | Amount | ||||
| Paint Stores | Operating Income | $ 480,000.00 | Net Sales | $ 3,970,000.00 | 12.09% | ||
| Consumer | Operating Income | $ 190,000.00 | Net Sales | $ 1,300,000.00 | 14.62% | ||
| Asset Turnover | |||||||
| Particulars | Choose Numerator | / | Choose denominator | = | Asset Turnover | ||
| Details | Amount | Details | Amount | ||||
| Paint Stores | Net Sales | $ 3,970,000.00 | Avg. Total Assets | $ 1,390,000.00 | 2.86 | ||
| Consumer | Net Sales | $ 1,300,000.00 | Avg. Total Assets | $ 1,585,000.00 | 0.82 | ||
| Return On Investment | |||||||
| Particulars | Choose Numerator | / | Choose denominator | = | Profit Margin | ||
| Details | Amount | Details | Amount | ||||
| Paint Stores | Operating Income | $ 480,000.00 | Avg. Total Assets | $ 1,390,000.00 | 34.53% | ||
| Consumer | Operating Income | $ 190,000.00 | Avg. Total Assets | $ 1,585,000.00 | 11.99% | ||
| ROI using Expanded Formula | |||||
| Division | Profit Margin | * | Capital Turnover | = | ROI |
| Paint Stores | 12.09% | * | 2.86 | 34.53% | |
| Consumer | 14.62% | * | 0.82 | 11.99% | |
Ace Paints is a national paint manufacturer and retailer. The company is segmented into five divisions:...