Question

Sales revenue is $500. Profit is $70. Gross margin ratio is 13%. Required rate of return is 10% a year. Asset turnover is 0.4. Current liabilities are $250. Compute return on investment (ROI).

Answer 1

Return on investment (ROI) =

7%.

Step-by-step explanation:

a) Sales Revenue = $500

Profit = $70

Gross margin ratio = 13%

Gross profit = $65 (13% of $500)

Cost of goods sold = $435 ($500 - 65)

Rate of return = 10%

Asset turnover ratio = 0.4

Asset = $500 / 0.4 = $1,250

Cost of Investment = Asset - Current Liabilities

= $1,250 - 250

= $1,000

ROI = Profit/Total investment

= $70/$1,000 * 100

= 7%

b) The Return on Investment (ROI) is a financial performance measure which evaluates the returns from an investment in order to determine the efficiency of the investment. ROI is calculated by taking the benefit (or return) of the investment and dividing it by the cost of the investment. The resulting figure is expressed as a percentage or a ratio.