Finch Corporation\'s balance sheet indicates that the company has $560,000 inves

Question

Finch Corporation's balance sheet indicates that the company has $560,000 invested in operating assets. During 2018, Finch earned operating income of $62.720 on $1,120,000 of sales Required a. Compute Finch's profit margin for 2018. b. Compute Finch's turnover for 2018. c. Compute Finch's return on investment for 2018 d. Recompute Finch's ROI under each of the following independent assumptions: (1) Sales increase from $1,120,000 to $1.344,000, thereby resulting in an increase in operating income from $62,720 to $67,200 (2) Sales remain constant, but Finch reduces expenses, resulting in an increase in operating income from $62,720 to $64,960 (3) Finch is able to reduce its invested capital from $560,000 to $448.000 without affecting operating income.

Explanation / Answer

Req A to C Sales Revenue 1,120,000 Net Operating Income 62,720 Operating Assets 560,000 Sales margin(Net Operating income/Sales*100) 5.60% Assets Turnover(Net Sales/Operating Assets) 2 times ROI (Sales margin*Assets Turnover) 11.20% A. Profit margin 5.6 % B. Assets Turnover 2 times. C. ROI 11.2 % ReqD: Case-1: Sales increase with increase in net operating income Revised Sales 1,344,000 Revised Net operating income 67,200 Net Operating Assets 560,000 Sales margin(Net Operating income/Sales*100) 5.00% Assets Turnover(Net Sales/Operating Assets) 2.4 ROI (Sales margin*Assets Turnover) 12.00% CASE 2: Net operating income increase Sales revenue 1,120,000 Revised Net operating income 64,960 Net Operating Assets 560,000 Sales margin(Net Operating income/Sales*100) 5.80% Assets Turnover(Net Sales/Operating Assets) 2 ROI (Sales margin*Assets Turnover) 11.60% CASE3: Reduction in Operating assets Sales revenue 1,120,000 Net operating income 62,720 RevisedNet Operating Assets 448,000 Sales margin(Net Operating income/Sales*100) 5.60% Assets Turnover(Net Sales/Operating Assets) 2.5 ROI (Sales margin*Assets Turnover) 14.00% Return on investment CASE-1 12% CASE-2 11.60% CASE-3 14%

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