Question

Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below: Sales $ 7,500,000 Net operating income $ 600,000 Average operating assets $ 5,000,000 Required: 1. Compute the margin for Alyeska Services Company. 2. Compute the turnover for Alyeska Services Company. (Round your answer to 1 decimal place.) 3. Compute the return on investment (ROI) for Alyeska Services Company

Answer 1

Answer:

1. Margin = 8%

2. Turnover = $7,500,000

3. Return on Investment = 12%

Explanation:

Sales for the year = $7,500,000

Net Operating Income = $600,000

Average Operating Assets = $5,000,000

1. Therefore, Margin = ( Net operating Income/Total Sales ) $\times$ 100 = 8%

2. Turnover = Sales for the period = $7,500,000

3. Return on Investment = Net Income/Average Operating assets

= $600,000/$5,000,000 = 12%

Answer 2

Revenue minus any operational expenses are operating income, while net income equals operating income minus any other non-operating expenses like interest and taxes.

1. Margin for Alyeska = 8%

2. Turnover for Alyeska = 1.5

3. Return on Investment for Alyeska = 12%

Step-by-Step computation

1. Margin

$\text{Margin} = \frac{\text{Net operating income}}{\text{Sales} }$

$\text{Margin} = \frac{600,000}{7,500,000}$

$\text{Margin} = 8$%

2. Turnover

$\text{Turnover} = \frac{\text{Sales}}{\text{Average Operating Assets} }$

$\text{Turnover} = \frac{7,500,000}{5,000,000}$

$\text{Turnover} = 1.5$

3) Return on Investment

$\text{ Return on Investment} = 8$ × $1.5$

$\text{ Return on Investment} = 0.08$ × $1.5$

$\text{ Return on Investment} = 0.12$ or $12$ %

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