1.Melbourne Chemical Company reported a 6% operating margin on sales, a 12% pret

Question

1.Melbourne Chemical Company reported a 6% operating margin on sales, a 12% pretax operating return on total assets, and $500 million of average total assets. Compute the (a) operating income,
(b) total sales, and (c) total asset turnover.

2. Honshu Electronics Corporation reported ¥250 million of sales, ¥20 million of operating income,and a total asset turnover of five times. (¥ is Japanese yen.) Compute the (a) total assets, (b) operating
return on sales, and (c) pretax operating return on total assets.

Explanation / Answer

1. Operating Margin = EBIT/ Sales = 6% Pretax ROA = EBIT/Total Assets = 12% So EBIT = 12% * TA = 12%*$500M = $60M....Ans (a) So Sales = EBIT/6% = $60M/6% = $1000M.......Ans (b) Total assets turnover ratio =Sales/Total assets = $1000M/$500M = 2.0.....Ans (c) 2. Sales = Y250M, Op Inc = EBIT = Y20M, TA turnover ratio = 5 TA ratio = Sales/TA So TA = Sales/TA Ratio = Y250M/5 = Y50M.......Ans (a) operating return on sales = EBIT/Sales = Y20M/Y250M = 8.00%....Ans (b) Pretax ROA = EBIT/Total Assets = Y20M/Y50M = 40%......Ans (c) .

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