Question

Return on investment

Commodore Entertainment has four profitable business segments, described as follows:

• Media Networks: Television and radio
• Parks and Resorts: Resorts, including Commodore land
• Studio Entertainment: Motion pictures, musical recordings, and stage plays
• Consumer Products: Character merchandising, Commodore stores, books, and magazines

Commodore Entertainment recently reported sector income from operations, revenue, and invested assets as follows:

	Income from     Operations		Revenue		Invested     Assets
Media Networks	$166,786		$843,300		$937,000
Parks and Resorts	56,551		466,400		583,000
Studio Entertainment	9,834		312,900		447,000
Consumer Products	117,458		477,700		281,000

a. Use the DuPont formula to determine the return on investment for the four Commodore Entertainment sectors. Round Profit Margin and ROI to one decimal place and Investment Turnover to two decimal places.

	Profit Margin	Investment Turnover	ROI
Media Networks	%		%
Parks and Resorts	%		%
Studio Entertainment	%		%
Consumer Products	%		%

b. How do the four sectors differ in their profit margin, investment turnover, and return on investment?

has the highest profit margin, while has the lowest profit margin. has the highest return on investment, while has the lowest return on investment.

Answer 1

ROI as per Dupont = (Profit margin)*(investment turnover) = (Income from operations/Revenue)*(Revenue/Assets)

a. Media Networks = $119472 / $628800 * $628800 / $786000

Media Networks = 19% * 80%

ROI of Media Networks = 15.20%

b. Parks and Resorts = $44714 / $339600 * $339600 / $566000

Parks and Resorts = 13.2% * 60.00%

ROI of Parks and Resorts = 7.9%

c. Studio Entertainment = $6120 / $285600 * $285600 / $408000

Studio Entertainment = 2.1% * 70.00%

ROI of Studio Entertainment = 1.50%

d. Consumer Products= $91630 / $441000 * $441000 / $245000

Consumer Products = 20.8% * 180.00%

ROI of Consumer Products = 37.40%