Via does business in three different business segments 1. Entertainment, publish
ID: 2502530 • Letter: V
Question
Via does business in three different business segments 1. Entertainment, publishing, information, and consumer/ commercial finance. Results for a recent year were as follows.
revenue
operating income
total assets
entertainment
$1,050
$210
$1,000
publishing/information
$700
$140
$1,400
consumer/commercial finance
$1,060
$265
$848
1. Compute the following for each business segment:
a. Return on sales
b. Capital turnover
c. ROI
2. Comment on the differences in ROI among the business segments. Include reasons for the differences.
revenue
operating income
total assets
entertainment
$1,050
$210
$1,000
publishing/information
$700
$140
$1,400
consumer/commercial finance
$1,060
$265
$848
Explanation / Answer
a. Return on sales = Operating Income / Revenue
entertainment business segment = $210 / $1,050 = 0.2 = 20%
publishing/information business segment = $140 / $700 = 0.2 = 20%
consumer/commercial financ business segment = $265/$1,060 = 0.25 = 25%
b. Capital turnover = revenue / total assets
entertainment business segment = $1,050/ $1,000 = 1.05 times
publishing/information business segment = $700/$1,400 = 0.5 times
consumer/commercial financ business segment = $1,060/$848 = 1.25 times
c. ROI = Return on sales x Capital turnover
entertainment business segment = 1.05 x 0.2 = 0.21 = 21%
publishing/information business segment = 0.5 x 0.2 = 0.1 = 10%
consumer/commercial financ business segment = 1.25 x 0.25 = 0.3125 = 31.25%
2) The ROI of consumer/commercial financ > ROI of entertainment > ROI of publishing/information.
The differences are because of
a) lower Capital turnover ratio of publishing/information business than the other two segments and
b)lower Return on sales ratio of publishing/information business than the other two segments and
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