Question

Return on investment is often expressed as follows Controllable margin Average operating assets Controllable margin Sales ROI Sales Average operating assets (b1) Comparative data on three companies operating in the same industry follow. The minimum required ROI is 10% for all three companies. Determine the missing amounts. (Round asset turnover of Company B and return on investment of Company C to 1 decimal place, e.g. 15.2 or 15.2% and all other answers to 0 decimal places, e.g. 152, Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Company A Company B Company C Sales $1,372,000 $788,200 $149,758 (b) Net operating income Average operating assets Profit margin Assets turnover $150,920 $686,000 (c) $5,435,000 % (e) 0.6 % Return on investment (h) 1.9% (i) G) Residual income

Answer 1

To determine the missing amounts for Company A, B, and C, we need to calculate the controllable margin, average operating assets, asset turnover, and return on investment (ROI).

1. For Company A:
- Sales: $1,372,000
- Profit margin: 0.6% (given as 0.6%)
- Net operating income: (a) (missing)
- Average operating assets: (b) (missing)
To find the missing amounts, we'll use the formula:
Controllable margin = Sales * Profit margin
Net operating income = Sales - Controllable margin
Average operating assets = Net operating income / ROI
Plug in the values:
Controllable margin = $1,372,000 * 0.6% = $8,232
Net operating income = $1,372,000 - $8,232 = $1,363,768
Average operating assets = $1,363,768 / 0.6% = $227,294,667

2. For Company B:
- Sales: $788,200
- Asset turnover: (c) (missing)
- Average operating assets: $686,000
To find the missing asset turnover, we'll use the formula:
Asset turnover = Sales / Average operating assets
Plug in the values:
Asset turnover = $788,200 / $686,000 = 1.149 (rounded to 1 decimal place)

3. For Company C:
- Sales: $149,758
- ROI: (h) (missing)
- Average operating assets: $5,435,000
To find the missing ROI, we'll use the formula:
ROI = (Net operating income / Average operating assets) * 100
Plug in the values:
ROI = (Unknown / $5,435,000) * 100 = 1.9%
Unknown = 1.9% * $5,435,000 / 100 = $103,265

In summary:
- Company A: Net operating income = $1,363,768, Average operating assets = $227,294,667
- Company B: Asset turnover = 1.149
- Company C: ROI = 1.9%, Net operating income = $103,265

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