Question

Bottlebrush company has operating income of $74,448, invested assets of $282,000, and sales of $676,800. Use the DuPont formula to compute the return on investment, and show:

a. The profit margin is ________ %.
b. The investment turnover is ________.
c. The return on investment is ________.

Answer 1

Using the DuPont formula, the profit margin is 10.99%, the investment turnover is 2.4, and the return on investment is 26.376%.

Step-by-step explanation:

To compute the return on investment using the DuPont formula, we need to calculate the profit margin and investment turnover first. Then, we can multiply these two values to determine the return on investment.

a. Profit Margin:

The profit margin is calculated by dividing the operating income by the sales and multiplying by 100 to get a percentage.

Profit Margin = (Operating Income / Sales) x 100

Profit Margin = ($74,448 / $676,800) x 100

Profit Margin = 0.1099 x 100

Profit Margin = 10.99%

b. Investment Turnover:

The investment turnover is calculated by dividing the sales by the average invested assets.

Investment Turnover = Sales / Average Invested Assets

Investment Turnover = $676,800 / $282,000

Investment Turnover = 2.4

Investment Turnover = 2.4 times

c. Return on Investment:

The return on investment is calculated by multiplying the profit margin by the investment turnover.

Return on Investment = Profit Margin x Investment Turnover

Return on Investment = 0.1099 x 2.4

Return on Investment = 26.376%