Alpha Company would like to examine the sales margin and assetturnover component
ID: 2433978 • Letter: A
Question
Alpha Company would like to examine the sales margin and assetturnover components of return on investment for three of itsdivisions and has accordingly prepared the following; Division Investment Division OperatingIncome Sales E 575,000 75,000 500,000 F 700,000 91,000 542,000 G 1,000,000 176,000 763,000 a. Compute each division's return on investment, salesmargin, and asset turnover b. COmment on the division's relative rankings on theratios computed in (a). Alpha Company would like to examine the sales margin and assetturnover components of return on investment for three of itsdivisions and has accordingly prepared the following; Division Investment Division OperatingIncome Sales E 575,000 75,000 500,000 F 700,000 91,000 542,000 G 1,000,000 176,000 763,000 a. Compute each division's return on investment, salesmargin, and asset turnover b. COmment on the division's relative rankings on theratios computed in (a).Explanation / Answer
Divisions E F G Return on Investment(Income/Investment) 75,000/575,000 = 13.04% 91,000/700,000 = 13% 176,000/1,000,000 = 17.6% Sales Margin(Income/Sales) 75,000/500,000 = 15% 91,000/542,000 = 16.79% 176,000/763,000 = 23.07% Asset Turnover(Sales/Investment) 500,000/575,000 = 0.87 times 542,000/700,000 = 0.7743 times 763,000/1,000,000 = 0.763 times Divisions G got the best performance on return on investment andsales margin. Division E and F have similar return on inveestment,but F got better sales margin. From the view of asset turnover, Division E got the highestturnover, following with division F and G
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