The Bata Company in Islamabad reports the following statistics on annual basis.
Net Operating Income | RS: 30, 000 |
Average Operating Assests | RS: 200, 000 |
Sales | RS: 500, 000 |
Operating Expenses | RS: 470, 000 |
(a) Calculate the Bata Company Return on Investment (ROI).
(b) Suppose that Bata’s manager invests in a RS. 30, 000 piece of equipment that increases sales by RS. 35,
000, while increasing operating expenses by RS. 15, 000. This increase alters the above mentioned
statistics. Calculate the new ROI.
(a): To calculate the ROI, we need to use a formula of ROI, which says the profit earned on an investment is divided by the cost of that investment to calculate return on investment (ROI).
So, to calculate the ROI for this scenario,
The total profit earned is = Net Operating Income + Average operating Assets + Sales / Operating Expenses
ROI = 30,000 + 200, 000 + 500, 000 / 470, 000
ROI = 7,30,000 / 470, 000
ROI = 1.55319148936
Now in order to calculate the new ROI, we need to consider new values
The total profit earned is = Net Operating Income + Average operating Assets + Sales / Operating Expenses
New ROI = 35,000 + 200, 000 + 500, 000 / 470,000 + 15,000
New ROI = 735000 / 485000
New ROI = 1.51546391753
So, the old ROI was 1.55319148936 which is 155.31% and New ROI is 1.51546391753 which is 151.54%
The Bata Company in Islamabad reports the following statistics on annual basis
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