P12-15 Comparative data on
three companies in the same service industry are given below:
Company
A
B
C
Sales . . . . . . . . . . .
. . . . . . . . . . . . .
$4,000,000 $1,500,000 $ ?
Net operating income . . .
. . . . . . . . . $
560,000 $ 210,000
$ ?
Average operating assets .
. . . . . . . .
$2,000,000 ?
$3,000,000
Margin . . . . . . . . . .
. . . . . . . . . . . . .
?
?
3.5%
Turnover . . . . . . . . .
. . . . . . . . . . . . .
?
?
2
Return on investment (ROI)
. . . . . . .
?
7%
?
Required:
1. What advantages are
there to breaking down the ROI computation into two separate elements, margin
and turnover?
2. Fill in the missing
information above, and comment on the relative performance of the three
companies in as much detail as the data permit. Make specific
recommendations about how to improve the ROI.
1. Breaking the ROI computation into two separate elements helps the manager to see important relationships that might remain hidden. First, the importance of turnover of assets as a key element to overall profitability
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