Question

Return on investment (ROI) can be restated as which of the following?

a) Residual income x Sales margin
b) Sales margin / Capital turnover
c) Residual income / Sales margin
d) Sales margin x Capital turnover

Answer 1

The correct restatement for ROI is 'd) Sales margin x Capital turnover', as ROI measures the profit of an investment relative to its cost, which is represented by the product of sales margin and capital turnover.

Step-by-step explanation:

Return on investment (ROI) is a key performance indicator in finance and business, used to measure the efficiency or profitability of an investment. In this context, we're looking at the various components that can be used to calculate ROI. The correct restatement for ROI among the provided options is d) Sales margin x Capital turnover. This is because ROI is calculated by dividing the net profit (which can be expressed by sales margin) by the investment cost (which is inversely related to capital turnover - more capital turnover means less investment for the same return).

The sales margin, or profit margin, represents the percentage of each dollar of revenue that translates into profit. The capital turnover ratio measures how effectively a company uses its capital to generate revenue. By taking the product of the sales margin and the capital turnover, a company's return on investment can be assessed.

Answer 2

The Return on Investment (ROI) is correctly restated as the product of Sales margin and Capital turnover, which aligns with option d). This formula represents the profitability and efficiency of a company's use of assets.

Step-by-step explanation:

The question 'Return on investment (ROI) can be restated as which of the following?' involves understanding the different components that make up the Return on Investment calculation. ROI is a measure used in finance to assess the performance of an investment relative to its cost. To calculate ROI, we typically look at the net profit relative to the investment's cost. The options provided represent different financial metrics but only one reflects the proper calculation of ROI.

When examining the options given, ROI is correctly restated as Sales margin multiplied by Capital turnover. Sales margin, also known as profit margin, is the ratio of profit to sales and indicates how much profit is made on each dollar of sales after covering the cost of goods sold. Capital turnover is a ratio that illustrates how well a company is using its assets to generate sales. It's computed by taking the total revenue and dividing it by the total assets. When you multiply these two ratios together, you get the ROI, which provides insight into both the profitability and the efficiency of the asset use.

Hence, the answer to the question is: Return on investment (ROI) can be restated as d) Sales margin x Capital turnover.