Question

Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:

Division Osaka Yokohama
Sales $ 10,700,000 $ 37,000,000
Net operating income $ 749,000 $ 3,330,000
Average operating assets $ 2,675,000 $ 18,500,000

For each division, compute the return on investment (ROI) in terms of margin and turnover.

Answer 1

Osaka ROI is 28%

Yokohama ROI is 18%

Step-by-step explanation:

The formula for return on investment =net income/average operating assets*100

For Osaka division:

net income is $749,000

average operating assets is $2,675,000

return on investment=$749,000/$2,675,000*100

=28%

For Yokohama

net income is $3,330,000

average operating assets is $18,500,000

return on investment=$3,330,000/$18,500,000

=18%

Even though Yokohama has a higher net operating income ,the Osaka division recorded a better performance using ROI as a performance metric,which shows profit computation is an absolute figure which does not consider the amount of resources invested in order to earn the profit