Return on investment
Soto Corporation’s balance sheet indicates that the company has $300,000 invested in operating assets. During 2011, Soto earned operating income of $45,000 on $600,000 of sales.
Required
a. Compute Soto’s profit margin for 2011.
b. Compute Soto’s turnover for 2011.
c. Compute Soto’s return on investment for 2011.
d. Recompute Soto’s ROI under each of the following independent assumptions.
(1) Sales increase from $600,000 to $750,000, thereby resulting in an increase in operating income from $45,000 to $60,000.
(2) Sales remain constant, but Soto reduces expenses resulting in an increase in operating income from $45,000 to $48,000.
(3) Soto is able to reduce its invested capital from $300,000 to $240,000 without affecting operating income.
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