Return on Investment , Profit margin and Investment Turnover: The above three ratios are important tool to measure the company ‘efficiency in earning profits and has been described as under: Return on Investment: This suggest the percentage income earned by the company on the average amount of net assets employed in the company. The higher the ratio, better is the performance of the company. Profit Margin: The ratio suggests that the percentage margin which the company is earning on the sales consideration. Investment turnover ratio; The Investment turnover ratio suggest that the number of times the assets get converted in to sales. The efficiency of the company is counted on this ratio as the more number of times the assets get converted in to sales, more efficient is the company. However, all the three ratios is integrated in the sense, that the Return on investment is a product of Margin and assets turnover ratio. To Determine: The Profit margin ratio of three divisions shall be computed.

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Chapter 24, Problem 14E

To determine

Return on Investment, Profit margin and Investment Turnover:

The above three ratios are important tool to measure the company ‘efficiency in earning profits and has been described as under:

Return on Investment: This suggest the percentage income earned by the company on the average amount of net assets employed in the company. The higher the ratio, better is the performance of the company.

Profit Margin: The ratio suggests that the percentage margin which the company is earning on the sales consideration.

Investment turnover ratio; The Investment turnover ratio suggest that the number of times the assets get converted in to sales. The efficiency of the company is counted on this ratio as the more number of times the assets get converted in to sales, more efficient is the company.

However, all the three ratios is integrated in the sense, that the Return on investment is a product of Margin and assets turnover ratio.

To Determine: The Profit margin ratio of three divisions shall be computed.

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