Using data on next page from Joe and Ray, as an investor, (a) who would you rath

Question

Using data on next page from Joe and Ray, as an investor, (a) who would you rather invest with? b) why? (c) what can potentially ruin your investment? (answer needs to include calcualtions) 1. XYZ earned an operating profit margin of 25% based on sales of $13,000,000 and total assets of $8,000,000. (a) what's the total asset turnover? (b) during coming year company set a goal of having a total asset turnover of 3.8. How much must sales rise with all else staying the same? 2. Calculate Harley Davidson's (a) operating income Return on Investment (ROI), (b) calculate the Total Asset Turnover, (c), what does it mean if Harley has a good Total Asset Turnover and a bad 3.

Explanation / Answer

Question - 2

Requirement (a) – Total Asset Turnover

Total Asset Turnover = Sales / Total Assets

= $13,000,000 / 8,000,000

= 1.63 Times

Requirement (b) – Increase in Sales to maintain a Total Asset Turnover of 3.80

Total Asset Turnover = Sales / Total Assets

Total Asset Turnover = [Current Sales + Increase in Sales] / Total Assets

3.80 = [$13,000,000 + Increase in sales] / 8,000,000

$30,400,000 = $13,000,000 + Increase in sales

Therefore, Increase in sales = $30,400,000 - 13,000,000 = $17,400,000

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