Question

Margin, Turnover, Return on Investment Pelak Company had sales of $4,974,000, expenses of $4,402,000, and average operating assets of $4,380,000. Required: 1. Compute the operating income. $ 2. Compute the margin (as a percent) and turnover ratio. If required, round your answers to one decimal place. Margin % Turnover 3. Compute the ROI as a percent. Use the part 2 final answers in these calculations and round the final answer to two decimal places. %

Answer 1

Answer:

1. $572,000

2. M = 11.5%; T = 1.1

3. ROI = 12.65%

Explanation:

1. Compute the operating income.

Operating income is given by sales minus expenses:

$I= 4,974,000 - 4,402,000\\I=\ 572,000$

2. Compute the margin (as a percent) and turnover ratio.

Margin is determined by the operating income divided by sales.

$M=\frac{\ 572,000}{\ 4,974,000} *100\\M=11.5\%$

Turnover ratio is given by Sales divided by operating assets:

$T=\frac{\ 4,974,000}{\ 4,380,000}\\ T=1.1$

3. Compute the ROI as a percent

The ROI is given by the margin multiplied by the turnover ratio

$ROI = 1.1 *11.5\%\\ROI=12.65\%$