Return on investment (ROI): 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: R O I = O p e r a t i n g I n c o m e A v e r a g e t o t a l a s s e t s R O I ( E x p a n d e d ) = O p e r a t i n g I n c o m e S a l e s × S a l e s A v e r a g e t o t a l a s s e t s Or R O I = P r o f i t M a r g i n R a t i o × A s s e t T u r n o v e r r a t i o 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: P r o f i t M a r g i n = O p e r a t i n g I n c o m e S a l e s 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: A s s e t T u r n o v e r R a t i o = S a l e s A v e r a g e t o t a l a s s e t s Requirement-1: The assets turnover ratio for each division

Question

Want to see the full answer?

Answer 1

Question

Chapter 24, Problem S24.11SE

To determine

Concept Introduction:

Return on investment (ROI):

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:

$R O I = \frac{O p e r a t i n g I n c o m e}{A v e r a g e t o t a l a s s e t s}$

$R O I (E x p a n d e d) = \frac{O p e r a t i n g I n c o m e}{S a l e s} \times \frac{S a l e s}{A v e r a g e t o t a l a s s e t s}$

Or

$R O I = P r o f i t M a r g i n R a t i o \times A s s e t T u r n o v e r r a t i o$

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:

$P r o f i t M a r g i n = \frac{O p e r a t i n g I n c o m e}{S a l e s}$

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:

$A s s e t T u r n o v e r R a t i o = \frac{S a l e s}{A v e r a g e t o t a l a s s e t s}$

Requirement-1:

The assets turnover ratio for each division

To determine

Requirement -2:

The ROI for each division using the expanded formula

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Affordable Furniture makes sofas, loveseats, and recliners. The company allocates manufacturing overhead based on direct labor hours. Affordable estimated a total of $1.0 million of manufacturing overhead and 30,000 direct labor hours for the year. Job 310 consists of a batch of 8 recliners.

1. Record the proper journal entry for each transaction. 2. By the end of January, was manufacturing overhead overallocated or underallocated? By how much?

Rocky River Fast Lube does oil changes on vehicles in 15 minutes or less. The variable cost associated with each oil change is $12 (oil, filter, and 15 minutes of employee time). The fixed costs of running the shop are $8,000 each month (store manager salary, depreciation on shop and equipment, insurance, and property taxes). The shop has the capacity to perform 4,000 oil changes each month.