Question

ROI, Margin, Turnover

Jarriot, Inc., presented two years of data for its Furniture Division and its Houseware Division.

Furniture Division:

	Year 1	Year 2
Sales	$33,870,000	$36,210,000
Operating income	1,422,540	1,520,820
Average operating assets	10,000,000	10,000,000

Houseware Division:

	Year 1	Year 2
Sales	$12,590,000	$13,139,800
Operating income	604,320	499,312
Average operating assets	5,000,000	5,000,000

Required:

Round the ROI and margin percentages to two decimal places (for example, enter the decimal .10555 as "10.56" percent). Round the turnover ratio to two decimal places.

1. Compute the ROI and the margin and turnover ratios for each year for the Furniture Division.

	Furniture Division
	ROI	Margin	Turnover
Year 1	%	%
Year 2	%	%

2. Compute the ROI and the margin and turnover ratios for each year for the Houseware Division.

	Houseware Division
	ROI	Margin	Turnover
Year 1	%	%
Year 2	%	%

3. Indicate the reason for change in ROI from Year 1 to Year 2 for the Furniture Division.

Indicate the reason for change in ROI from Year 1 to Year 2 for the Houseware Division.

Answer 1

1)	Furniture division
		ROI	Profit Margin	Turnover
		Return On Assets = Net Income / Average Assets	Profit Margin = Net Income / Sales	Assets Turnover Ratio = Sales / average Assets
	year1	= $1422540/10000000	= $1422540/33870000	= $33870000/10000000
		=14.23 %	=4.2 %	=3.39 times
	Year 2	= $1520820/10000000	= $1520820/36210000	= $36210000/10000000
		=15.21 %	=4.2 %	=3.62 times
2)	Houseware Division:
		ROI	Profit Margin	Turnover
		Return On Assets = Net Income / Average Assets	Profit Margin = Net Income / Sales	Assets Turnover Ratio = Sales / average Assets
	year1	= $604320/5000000	= $604320/12590000	= $12590000/5000000
		=12.09 %	=4.8 %	=2.52 times
	Year 2	= $499312/5000000	= $499312/13139800	= $13139800/5000000
		=9.99 %	=3.8 %	=2.63 times
3)	Indicate the reason for change in ROI from Year 1 to Year 2 for the Furniture Division
	Dure to increase of asset turnover.
	Indicate the reason for change in ROI from Year 1 to Year 2 for the Houseware Division.
	dure to decrease in profit margin ratio.