Question

Exercise 11-11 Effects of Changes in Profits and Assets on Return on Investment (ROI) [LO11-1] [The following information applies to the questions displayed below.] Fitness Fanatics is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The company's Springfield Club reported the following results for the past year: Sales $ 820,000 Net operating income $ 22,140 Average operating assets $ 100,000 The following questions are to be considered independently.

Answer 1

Return on investment = Net operating income/Average operating assets x 100

Return on investment = $22,140/100,000 x 100

Return on investment = 22.14%

Explanation: Return on investment is the relationship between net operating income and average operating assets. The division of net operating income by average operating assets gives return on investment.