Ever Wares is a division of a major corporation. Financial data for the last yea

Question

Ever Wares is a division of a major corporation. Financial data for the last year is as follows: Ever Wares Balance Sheet Ending Balance Beginning Balance Cash S 238,503 218,049 702,497 1,846,224 12,099 3,621 Long Investment- Available for Sale Securities .783,039 781,993 2,049,950 299,000 512,581-55213.433 682,420 1.985,683 1846.224 Inventory Prepaid Insurance Supplies 10,593 3,902 Plant and Equipment (Net of Depreciation) Land (Held for future expansion) 2,509,441 Total Assets Accounts Payable Long-term Debt... Common Stock ($10 par) Paid-In Capital in excess of Par Retained Earnings Total Liabilities and Shareholders Equity 2,399,301 500,000 750,000 1,999.614 1.365,174 s 6,512,581-ss913433 2,424,636 750,000 Ever Wares Income Statement $ 14,720,000 10,843.000 3,877,000 2,745,048 1,131,952 128,971 84,862 1,176,061 Sales Cost of Goods Sold Gross Margin Operating Expenses Gain on the sales of AFS Securities Interest Expense Net Income Before Taxes Income Tax Expense Net Income 41 S 764440

Explanation / Answer

a. Company’s margin = 764440 / 14720000 =5.19% b. company's turnover = $ 14.72m c. Company's return on investment (ROI)= EBIT / Total Investment = 1131952 / (2424636+500000+750000) = 30.8% d. residual income = (2424636+500000+750000)* (30.8% - 15%) = $580592.50 e. Disadvantages of ROI are: 1) concentration of financial terms, 2) only finance input factor is considered         3) lower ROI does not mean bad performance, as social service, employee remuneration could be of best. The ROI figure promotes the manager and projects acceptance as higher ROI will indicate better margin of the company, so better bonuses to managers and funds for execution of new projects and expansion of business.

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