Chapter 24, Problem P24.29APGA

To determine

Concept Introduction

Investment Center: It is a subunit of an organization that holds responsibility towards its profitability in relation to its investment base (or assets base).

Return on Investment (ROI): ROI is a financial profitability ratio that is used to calculate the benefit received by an investor relative to the cost of the investment. It is commonly measured as the ratio of net income (or operating income) to the cost of investment which is the average total assets of a company.

Profit Margin Ratio: Profit Margin Ratio is a financial profitability ratio that is used to compare a company’s net earnings and its net sales. It is calculated by dividing net income (or operating income) by net sales of a company.

Asset Turnover Ratio: Asset Turnover Ratio is a financial efficiency ratio which is used to measure how efficiently a company is using its assets to generate sales. It is measured as the ratio of net sales to the average total assets of a company.

Residual Income (RI): Residual Income is the amount of net income (or operating income) that is generated over or under the company’s minimum return on investment.

1.

To Compute: The ROI of Safe Money, Inc.

To determine

2.

To Compute: The Company’s profit margin ratio. Also, results are to be interpreted.

To determine

3.

To Compute: The Company’s asset turnover ratio. Also, results are to be interpreted.

To determine

4.

To Confirm: The results from Requirement 1 by using the expanded ROI formula. Also, results are to be interpreted.

To determine

5.

To Compute: The Company’s RI (Residual Income). Also, results are to be interpreted.