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 | $ | 10,800,000 | $ | 38,000,000 |
Net operating income | $ | 648,000 | $ | 3,040,000 |
Average operating assets | $ | 3,600,000 | $ | 19,000,000 |
Required:
1. For each division, compute the return on investment (ROI) in terms of margin and turnover.
2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division.
3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Fitness Fanatics is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The company's Springfield Club reported the following results for the past year:
Sales | $ | 840,000 |
Net operating income | $ | 24,360 |
Average operating assets | $ | 100,000 |
The following questions are to be considered independently.
2. Assume that the manager of the club is able to increase sales by $84,000 and that, as a result, net operating income increases by $7,056. Further assume that this is possible without any increase in average operating assets. What would be the club’s return on investment (ROI)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Get Answers For Free
Most questions answered within 1 hours.