5. Profit Margin, investment turnover, and rate of return on investment The divi
ID: 2451150 • Letter: 5
Question
5. Profit Margin, investment turnover, and rate of return on investment
The divisional income statements for three divisions of the McLaren company are show.
McLaren Company
Divisional Income statements
For the Year ending December 31,2013
Additional financial data from the three divisions of the McLaren company are shown.
Please complete the follwoing four questions:
A. Calculate the profit margin and the investment turnover for each division. Round profit margin to the nearest tenth of a percent for example, 14.6% and investment turnover to two decimal places for example, 0.82.
b. Using the profit margins and investment turnovers, calculate the rate of return on investment for each division using the DuPont formula. Round the rate of return on investment to the nearest hundredth of percent for example, 16.94%.
C. The division showing the highest operating profitablity is Division __________.
D. The division showing the highest operating efficiency is Division_______.
Divsion A Division B Division C Revenues $960,000 $900,000 $320,000 Operating expense 564,500 675,000 170,000 Income from operation before service department charges $395,500 $225,000 $150,000 Service department charges 275,500 135,000 70,000 Income from Operations $120,000 $90,000 $80,000Explanation / Answer
A.
B.
C.
The division showing the highest operating profitablity is Division C.
D.
The division showing the highest operating efficiency is Division C.
Division A Division B Division C Income from operations(a) 120000 90000 80000 Revenues(b) 960000 900000 320000 Profit Margin (a/b*100) 12.5% 10% 25% Revenues(c) 960000 900000 320000 Invested Assets(d) 1000000 600000 400000 Investment Turnover(c/d) 0.96 1.50 0.80Related Questions
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