The following data pertain to British Isles Aggregates Company, a producer of sa

Question

The following data pertain to British Isles Aggregates Company, a producer of sand, gravel, and cement, for the year just ended.

£ denotes the British pound sterling, the national monetary unit of Great Britain.

Compute the company’s sales margin, capital turnover, and ROI.

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 30 percent?

Sales revenue £ 6,200,000 Cost of goods sold 2,596,000 Operating expenses 3,232,000 Average invested capital 1,550,000

Explanation / Answer

Net operating income = 6200000-2596000-3232000= $372000 1 Sales margin = 372000/6200000= 6% Capital turnover = 6200000/1550000= 4 ROI = 6%*4 = 24% 2 Required net operating income = 1550000*30%= $465000 Total expenses required = 6200000-465000= $5735000

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