Question

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A. Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity $ 127,000 338,000 569,000 866,000 391,000 253,000 $ 2,544,000 $ 130,000 483,000 480,000 847,000 435,000 249,000 $2,624,000 $ 379,000 1,007,000 1,158,000 $ 2,544,000 $ 348,000 1,007,000 1,269,000 $2,624,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: Interest expense $ 118,000 Tax expense 192,000 Net income $ 4,992,000 4,143,360 848,640 310,000 538,640 $

Answer 1

Average operating assets

= [(2,544,000-253,000-391,000)+(2,624,000-249,000-435,000)]/2

= 1,920,000

.

Margin = Net operating income/sales

= 848,640/4,992,000

= 17%

.

Turnover = Sales/Average operating assets

= 4,992,000/1,920,000

= 2.6

.

ROI = margin * turnover = 17*2.6

= 44.2%

.

Residual income = Net operating income - Required return

= 848,640 - (1,920,000*15%)

= 560,640