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Concept Introduction:
Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:
Or
Profit Margin Ratio:
Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:
Asset Turnover Ratio:
Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:
Residual Income (RI):
Residual Income is the income earned over and above the expected
Requirement-1:
To calculate: ROI for each Division
Requirement-2:
To calculate: Profit Margin Ratio for each Division
Requirement-3:
To calculate: Asset Turnover Ratio for each Division
Requirement-4:
To calculate: ROI using the Expanded ROI formula
Requirement-5:
To calculate: The Residual Income (RI) for each division and recommendation
Requirement-6:
To describe: Some factors that management considers when setting the minimum target rate of return
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Chapter 24 Solutions
ACCOUNTING PRINCIPLES 222 5/16 >C<
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