Question

Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:

Division
Osaka Yokohama
Sales $ 10,200,000 $ 32,000,000
Net operating income $ 816,000 $ 3,200,000
Average operating assets $ 2,550,000 $ 16,000,000
Required:
1. For each division, compute the return on investment (ROI) in terms of margin and turnover. (Do not round intermediate calculations)

Answer 1

Osaka Yokohama

$ $

Profit margin

= Net operating income x 100 816,000 x 100 $3,200,000 x 100

Sales 10,200,000 32,000,000

= 8% 10%

Asset turnover

= Sales 10,200,000 32,000,000

Average operating assets 2,550,000 16,000,000

= 4 2

ROI

= Profit margin x asset turnover 8% x 4 10% x 2

32% 20%

Step-by-step explanation:

In this question, we need to calculate profit margin by dividing the net operating income by the sales multiplied by 100. Then, we will calculate asset turnover by dividing sales by average operating assets. Finally, we will calculate ROI by multiplying the profit margin by asset turnover.

Answer 2

Osaka:

ROI = 32% in terms of margin

ROI = 400% in terms of turnover

Yokohama:

ROI = 20% in terms of margin

ROI = 200% in terms of turnover

Step-by-step explanation:

ROI is an investor ratio meant to measure return/performance of a particular investment.

The formula for calculating ROI is as follows:

ROI= NET PROFIT ÷ COST OF INVESTMENT/AVERAGE OPERATING ASSETS.

ROI for Osaka division is as follows;

ROI = $816000÷$2550000×100

ROI = 32%

ROI for Yokohama division is as follows;

ROI = $3200000÷$16000000×100

ROI = 20%

The formula for calculating ROI in terms of turnover is as follows;

ROI in terms of turnover = sales÷average operating assets×100

ROI for Osaka division is as follows;

ROI = $10200000÷$2550000×100

ROI = 400%

ROI for Yokohama division is as follows;

ROI = $32000000÷$16000000×100

ROI = 200%

So form the results it's pretty clear that division Osaka is performing better than Yokohama. But we can also see that the level of investment in Osaka is also greater than that of Yokohama.