Chapter 24, Problem 11CP

To determine

Concept Introduction:

Assets: These are resources which the company owns and will generate future economic benefits. The assets are categorized into fixed asset which will help in generating revenues for long period of time and examples is plant and machinery, building , equipments etc and current assets are resources which will be converted into cash within one year examples are accounts receivable , inventory

Return on Investment: It shows the profitability and efficiency of assets in generating revenues. The formula of calculating Return of Investment is given below

$\begin{array}{l}\text{Return on Investment = }\frac{\text{Operating Income}}{\text{Average total assets}}\text{ x 100}\\ \text{Where}\\ \text{Average total Assets = }\frac{\text{opening balance of assets + closing balance of assets}}{2}\end{array}$

It always shown in percentage

Profit Margin Ratio: This ratio determines the percentage of operating profit on net sales and the formula to calculate it is given below

$\begin{array}{l}\text{Profit Margin Ratio = }\frac{\text{Operating Income}}{\text{Sales revenue }}\text{ x 100}\\ \end{array}$

It always shown in percentage

To Prepare:

Calculate profit margin ratio for the year 2017 for Thompson Toy Company