Question

Gabbe Industries is a division of a major corporation. Last year the division had total sales of $23,615,600, net operating income of $3,164,490, and average operating assets of $5,492,000. The company's minimum required rate of return is 19%.

Required:
a. What is the division's margin?
b. What is the division's turnover?
c. What is the division's return on investment (ROI)?

Answer 1

Gabbe Industries

a. Division's margin

= 13.40%

b. Division's turnover

= 4.3x

c. Division's return on investment (ROI)

= 57.62%

Step-by-step explanation:

a) Data and Calculations:

Sales = $23,615,600

Net operating income = $3,164,490

Average operating assets = $5,492,000

Minimum required rate of return = 9%

a. Division's margin =Net operating income/Sales * 100

= $3,164,490/$23,615,600 * 100

= 13.40%

b. Division's turnover = Sales/Average operating assets

= $23,615,600/$5,492,000

= 4.3x

c. Division's return on investment (ROI) = Net operating income/Average operating assets

= $3,164,490/$5,492,000 * 100

= 57.62%