Question

Bottlebrush Company has operating income of $79,662, invested assets of $142,000, and sales of $168,600. Use the DuPont formula to compute the return on investment, and show (a) the profit margin, (b) the investment turnover, and (c) the return on investment. Round answers to one decimal place.

a. Profit margin
b. Investment tumover
c. Return on investment

Answer 1

The profit margin of Bottlebrush Company is 47.25% and the investment turnover is 1.1873. Therefore, the return on investment is 56.1%.

Step-by-step explanation:

To compute the return on investment using the DuPont formula, we need to calculate the profit margin and the investment turnover.

(a) Profit margin = Operating income / Sales = $79,662 / $168,600 = 0.4725 or 47.25%

(b) Investment turnover = Sales / Invested assets = $168,600 / $142,000 = 1.1873

(c) Return on investment = Profit margin x Investment turnover = 0.4725 x 1.1873 = 0.5614 or 56.1%