Question

Gabbe Industries is a division of a major corporation. Last year the division had total sales of $23,826,400, net operating income of $2,835,342, and average operating assets of $9,164,000. The company's minimum required rate of return is 19%.

Answer 1

a. Division margin:

= Net operating income / Total sales

= 2,835,342 / 23,826,400

= 11.9%

b. Division turnover:

= Sales / Total assets

= 23,826,400 / 9,164,000

= 2.6 times

c. Division ROI:

= Net operating income / Total assets

= 2,835,342 / 9,164,000

= 30.94%