If a company has an operating profit of $87 million, a tax rate of 35%, a net wo

Question

If a company has an operating profit of $87 million, a tax rate of 35%, a net working capital of $129 million, and fixed assets of $285 million. Calculate the company's return on investment capital. Then describe three methods a firm can increase its ROIC.

ule lll'& ROD Changed between Year 1 and Year 2 J Nextime Ltd. has operating profits (EBIT) of $87 million, a tax rate of35%, net working capital of $129 million, and fixed assets of $285 million. Calculate Nextime's return on invested capital, or ROIC. Then, describe three methods by which a firm can increase its ROIC Fixem Co. has revenue of $125 million, property and equipment of $42 million, and accumulated depreciation and amortization of $6 million. Estimate the fixed asset turnover ratio. Wally Wholesale has revenue of $487,000, end-of-year receivables of $112,000, account payables of $70,000, and inventory of $91,000. Assume purchases equal cost of alas of

Explanation / Answer

Company's return on investment capital = EBIT * (1-Tax rate)/Net working capital + Fixed assets = 87,000,000 * (1-0.35)/129,000,000+285,000,000 = 56,550,000/414,000,000 =          0.014 Three methods by which a firm can increase its ROIC:-              1 Increase operating profit (EBIT)              2 Increase net working capital              3 Increase fixed assets

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