Question

1) Which of the following is not one of the components of the DuPont system for measuring and evaluating business performance?

• Inventory turnover

• Capital turnover

• Return on sales

• Return on investment

2)

The return on investment is calculated by:

-Multiplying the capital turnover by the return on sales.

• Dividing the capital turnover by the return on sales.

• Multiplying operating income by capital turnover.

• Dividing average invested capital by sales.

3)

The Lastrom Company provided the following information regarding its operations:

2017	Total assets	$	7,600,000
2018	Total assets	$	8,100,000
2017	Net operating income	$	188,500
2018	Net operating income	$	193,500
2017	Net sales	$	4,575,000
2018	Net sales	$	5,150,000

What is Lastrom's ROI for the year ending 2018?

-2.40%

• 2.46%

• 3.88%

• 3.98%

Answer 1

1) Inventory turnover is not a components of DuPont system.

Reason : Components of DuPont system are capital turnover, return on sales & return on investment.

2) Dividing the capital turnover by the return on sales is formula for return on investment.

Reason: Other formula is not correct.

3) Return on investment (ROI) = Net operating income / Average total assets

Here,

Net operating income = $1,93,500

Average total assets = ($81,00,000 + $76,00,000)/2 = $78,50,000

Now,

ROI (2018) = $1,93,500 / $78,50,000 * 100 = 0.0246 or 2.46%