1.Compute the company’s sales margin, capital turnover, and ROI. 2.If the sales
ID: 2526477 • Letter: 1
Question
1.Compute the company’s sales margin, capital turnover, and ROI.
2.If the sales and average invested capital remain the same during the next year, to what level would total expenses have to be reduced in order to improve the firm’s ROI to 40 percent?
3. Assuming that the expenses and cost of goods sold are reduced in order to improve the firm's ROI to 40 percent, compute the firm's new sales margin.
4. Show how the new sales margin and the old capital turnover together result in a new ROI of 40 percent.
The following information applies to the questions displayed below.] The following data pertain to British Isles Aggregates Company, a producer of sand, gravel, and cement, for the year just ended. Sales revenue Cost of goods sold Operating expenses Average invested capital E6,350,000 2,227,000 3,551,500 1,587,500 E denotes the British pound sterling, the national monetary unit of Great Britain.Explanation / Answer
Answer:
1
Sales revenue
6,350,000
Less:
Cost of goods sold
2227000
operating expanses
3551500
5778500
Operating income
571,500
Sales margin:
$571,500 ¸ 6,350,000
= 9%
Capital turnover:
$6,350,000¸ $1587500
= 4
Return on investment:
$571,500 ¸ $1587500
= 36%
_____________________________________________
2
Capital
1,587,500
Desired Rate
40%
Income should be
635000
So expanses should be
Sales revenue
6,350,000
Less:
Income should be
635000
Expnases
5,715,000
total expenses have to be reduced 5715,000 from 5778500 in order to improve the firm’s ROI to 40 percent
__________________________________
3
Sales margin:
$635000¸ $6,350,000
= 10%
_________________________________________
4
Capital turnover can be improved by increasing sales revenue and reducing invested capital.
Sales margin:
Sales margin:
$635000¸ $6,350,000
= 10%
Capital turnover:
$6,350,000¸ $1587500
= 4
Return on investment:
$635,000 ¸ $1587500
= 40%
Sales revenue
6,350,000
Less:
Cost of goods sold
2227000
operating expanses
3551500
5778500
Operating income
571,500
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