A family friend has asked your help in analyzing the operations of three anonymo

Question

A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Enter your ROI and Rate of Return Percentage answers to the nearest percentage (i.e., 0.12 should be entered as 12).) Company Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: $480,000 $680,000 $47,000 $ 670,000 $169,000 $ 149,000 23 % 201 % 12% 0 Percentage 141% Dollar amount 55,000 Residual income 7,000

Explanation / Answer

1.

ROI = Net Operating Income / Average Operating Assets

Residual Income = Net Operating Income - ( Average Operating Assets x Minimum Required Rate of Return)

2.

Margin = Net Operating Income / Sales

Turnover = Sales / Average Operating Assets

ROI = Margin x Turnover

Company A Company B Company C Sales $ 480,000 $ 680,000 $ 670,000 Net Operating Income 38,870 47,000 24,880 Average Operating Assets 169,000 235,000 149,000 Return on Investment ( ROI) 23 % 20% 17 % Minimum Required Rate of Return Percentage 14% 23 % 12% Dollar Amount 23,660 55,000 17,880

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