Answer:
For Company A:
Margin = Net Operating Income / Sales *100
Margin = $651,840 / $4,074,000* 100
Margin = 16%
Turnover = Sales / Average Operating Assets
Turnover = $4,074,000 / $1,940,000
Turnover = 2.1
Return on Investment = Margin * Turnover
Return on Investment = 16% * 2.1
Return on Investment = 33.6%
For Company B:
Margin = Net Operating Income / Sales * 100
Margin = $154,000 / $1,400,000
Margin = 11%
Return on Investment = Margin * Turnover
0.055 = 0.11 * Turnover
Turnover = 0.055/ 0.11
Turnover = 0.5
Turnover = Sales / Average Operating Assets
0.5 = $1,400,000 / Average Operating Assets
Average Operating Assets = $1,400,000 / 0.5
Average Operating Assets = $2,800,000
For Company C:
Turnover = Sales / Average Operating Assets
2 = Sales / $2,550,000
Sales = $2,550,000 * 2
Sales = $5,100,000
Margin = Net Operating Income / Sales
0.06 = Net Operating Income / $5,100,000
Net Operating Income = 0.06 * $5,100,000
Net Operating Income = $306,000
Return on Investment = Margin * Turnover
Return on Investment = 6% * 2
Return on Investment = 12%
Problem 11-17 Comparison of Performance Using Return on Investment (ROI) (LO11-1] Comparative data on three companies...
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