Question

Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below:

Sales $17,600,000
Net operating income $6,200,000
Average operating assets $36,000,000

Required:
a. Compute the margin for Alyeska Services Company.
b. Compute the turnover for Alyeska Services Company.
c. Compute the return on investment (ROI) for Alyeska Services Company.

Answer 1

a. The margin for Alyeska Services Company: 35.23%

b. The turnover for Alyeska Services Company: 0.49

c. The return on investment (ROI) for Alyeska Services Company: 17.22%

Step-by-step explanation:

a. The profit margin reflects a company's overall ability to turn income into profit, is calculated by formula:

Profit margin = (Net operating income/Net sales ) x 100% = $6,200,000/$17,600,000 x 100% = 35.23%

b. Asset turnover helps investors understand how effectively companies are using their assets to generate sales. Asset turnover is calculated by using following formula:

Asset Turnover = Total Sales/ Average Total Assets = $17,600,000/$36,000,000 = 0.49

c. Return on investment (ROI) is calculated by using following formula:

ROI = Net income/Total investment x 100%

In Alyeska Services Company,

ROI = Net operating income/Average operating assets x 100% = $6,200,000/$36,000,000 x 100% = 17.22%