Question

ZNet Co. is a web-based retail company. The company reports the following for 2017 Sales Operating income Average invested assets $13,920,000 6,960,000 34,800,000 The company's CEO believes that sales for 2018 will increase by 30%, and both profit margin (%) and the level of average invested assets will be the same as for 2017 1. Compute return on investment for 2017. 2. Compute profit margin for 2017. 3. If the CEO's forecast is correct, what will return on investment equal for 2018? 4. If the CEO's forecast is correct, what will investment turnover equal for 2018? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute return on investment for 2017. Return on Investment T Choose Denominator: Choose Numerator: - Return on Investment Return on investment Required 1 Required 2 >

Answer 1

(1)

for 2017:

return on investment = operating income/average invested assets

= $6960000/$34800000

= 20%

(2)

for 2017:

profit margin = operating income/sales

= $6960000/$13920000

= 50%

(3)

for 2018:

sales = $13920000 x 130% = $18096000

operating income = $18096000 x 50%

= $9048000

return on investment = operating income/average invested assets

= $9048000/34800000

= 26%

(4)

for 2018:

investment turnover = sales/average invested assets

= $18096000/$34800000

= 0.52 times