Question

Elway Company provided the following income statement for the last year:

Sales	$888,440,000
Less: Variable expenses	540,819,000
Contribution margin	$347,621,000
Less: Fixed expenses	196,285,000
Operating income	$151,336,000

At the beginning of last year, Elway had $38,626,000 in operating assets. At the end of the year, Elway had $41,362,000 in operating assets.

Required:

1. Compute average operating assets.
$

2. Compute the margin (as a percent) and turnover ratios for last year. If required, round your answers to two decimal places.

Margin	%
Turnover

3. Compute ROI as a percent. Use the part 2 final answers in these calculations and round the final answer to two decimal places.
%

4. ROI measures a company’s ability to generate relative to its investment in assets. The greater the ROI, the efficiently the company is generating from its assets.

5. CONCEPTUAL CONNECTION Comment on why the ROI for Elway Company is relatively high (as compared to the lower ROI of a typical manufacturing company).

Elway Company might be a service organization with relatively few physical assets required to generate its sales revenue and income. ROI will be higher when the factors that create a company’s sales or income are not formally recognized as assets (e.g. human talent).

Elway Company might be a service organization with relatively few physical assets required and generates an income much higher than any manufacturing organization. ROI will be higher when the factors that create a company’s sales or income are not formally recognized as assets (e.g. human talent).

Elway Company might be a service organization with relatively few physical assets required and generates an income much higher than any manufacturing organization. ROI will be higher when the factors that create a company’s sales or income are not formally recognized as assets (e.g. goodwill).

Answer 1

1	Average Operating Assets:	(Opening assets + Closing Asset)/2
		(38626000+41362000)/2
		39994000
2	Margin	Operating Income/Sales
		(151336/888440)*100
		17.03	%
	Turnover	Sales / Average operating assets
		(888440000/39994000)
		22.21	Times
3	ROI	Margin x Turnover
		378.40	%
4	ROI measures a company’s ability to generate Operating Income relative to its investment in assets. The greater the ROI, the more efficiently the company is generating return from its assets.