Improving ROI (LO 2,3)
The following data pertain to British Isles Aggregates Company, a producer of sand, gravel, and cement, for the year just ended.
Sales revenue | £2,000,000 |
Cost of goods sold | 1,100,000 |
Operating expenses ‘ | 800,000 |
Average invested capital | 1,000,000 |
£ denotes the British pound sterling, the national monetary unit of Great Britain. | |
Required:
1. Compute the company’s sales margin, capital turnover, and ROI.
2. If the sales and average invested capital remain the same during the next year, to what level would total expenses have to be reduced in order to improve the firm’s ROI to 15 percent?
3. Assume expenses are reduced, as calculated in requirement (2). Compute the firm’s new sales margin. Show how the new sales margin and the old capital turnover together result in a new ROI of 15 percent.
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