Asked by Anisha Bagga on May 06, 2024
Verified
Gabbe Industries is a division of a major corporation. Last year the division had total sales of $8,910,000, net operating income of $962,280, and average operating assets of $3,000,000. The company's minimum required rate of return is 10%.Required:a. What is the division's margin?b. What is the division's turnover?c. What is the division's return on investment (ROI)?
Return On Investment (ROI)
A financial metric that calculates the profitability of an investment by dividing the profit gained from an investment by its cost.
Net Operating Income
A measure of a company's financial performance, calculated as revenues minus expenses from operations, not including non-operating income and expenditures.
Operating Assets
Assets employed in the day-to-day operations of a business that are expected to generate economic benefits, including both current and non-current assets.
- Calculate the return on investment (ROI) for a division within a corporation.
- Calculate and interpret financial performance metrics such as margin, turnover, and residual income.
Verified Answer
BS
Barrington SaintMay 10, 2024
Final Answer :
a. Margin = Net operating income ÷ Sales = $962,280 ÷ $8,910,000 = 10.8%b. Turnover = Sales ÷ Average operating assets = $8,910,000 ÷ $3,000,000 = 3.0c. Return on investment = Net operating income ÷ Average operating assets = $962,280 ÷ $3,000,000 = 32.1%
Learning Objectives
- Calculate the return on investment (ROI) for a division within a corporation.
- Calculate and interpret financial performance metrics such as margin, turnover, and residual income.