Asked by Talia Miller on May 20, 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)?
Net Operating Income
Income from operations after deducting operating expenses but before interest and taxes.
Operating Assets
Assets utilized in the daily operations of a business to generate revenue, such as equipment, machinery, and buildings.
Minimum Required Rate of Return
The lowest acceptable return on an investment, determined by the investor's objectives, risks, and opportunities.
- Familiarize yourself with the idea of residual income and the computational technique.
- Understand the process and importance of calculating Return on Investment (ROI).
- Understand the techniques for computing margins and turnovers.
Verified Answer
VC
Vanessa colonMay 25, 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 = 3.0
c.ROI = Net operating income ÷ Average operating assets = $962,280 ÷ $3,000,000 = 32.1%
b.Turnover = Sales ÷ Average operating assets = $8,910,000 ÷ $3,000,000 = 3.0
c.ROI = Net operating income ÷ Average operating assets = $962,280 ÷ $3,000,000 = 32.1%
Learning Objectives
- Familiarize yourself with the idea of residual income and the computational technique.
- Understand the process and importance of calculating Return on Investment (ROI).
- Understand the techniques for computing margins and turnovers.