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Problem 10-17 Comparison of Performance Using Return on Investment (ROI) [LO10-1]

Comparative data on three companies in the same service industry are given below:

Required:

2. Fill in the missing information. (Round the "Margin" answers to 1 decimal place and "Turnover" answers to 2 decimal places.)

	Company
	A		B		C
Sales	$600,000		$500,000
Net operating income	$84,000		$70,000
Average operating assets	$300,000				$1,000,000
Margin		%		%	3.5	%
Turnover					2.00
Return on investment (ROI)		%	7	%		%

Answer 1

Margin=net operating income/sales

Turnover=sales/average operating assets

ROI=net operating income/average operating assets

	A	B	C
Sales	600,000	500,000	(1,000,000*2)=$2,000,000
net operating income	84000	70000	(2,000,000*3.5%)=$70,000
Average operating assets	300,000	(70000/0.07)=$1,000,000	1,000,000
Margin	(84000/600,000)=14%	(70000/500,000)=14%	3.5%
Turnover	(600,000/300,000)=2	(500,000/1,000,000)=0.5	2
ROI	(84000/300,000)=28%	7%	(70000/1,000,000)=7%