Asked by Dathan Trejo on Apr 24, 2024
Verified
Eady Wares is a division of a major corporation. The following data are for the latest year of operations:
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)?d. What is the division's residual income?
Return On Investment (ROI)
A financial ratio used to measure the profitability of an investment, calculated by dividing the net profit from the investment by its initial cost.
Residual Income
The income that remains after deducting all required costs of capital and operating expenses from net income.
Margin
A financial metric that measures the amount by which revenue from sales exceeds costs in a business, usually presented as a percentage of revenue.
- Determine the ROI for a particular division inside a corporation.
- Determine and explain financial performance measures like margin, turnover, and residual income.
Verified Answer
GG
Grimey Gaming6 days ago
Final Answer :
a.Margin = Net operating income ÷ Sales = $470,400 ÷ $19,600,000 = 2.4%b.Turnover = Sales ÷ Average operating assets = $19,600,000 ÷ $5,000,000 = 3.9c.Return on investment = Net operating income ÷ Average operating assets = $470,400 ÷ $5,000,000 = 9.4%d.Residual income = Net operating income − Minimum required rate of return × Average operating assets = $470,400 − 10% × $5,000,000 = ($29,600)
Learning Objectives
- Determine the ROI for a particular division inside a corporation.
- Determine and explain financial performance measures like margin, turnover, and residual income.