2018/9/10 Exercise not in the 4th edition 1. Wh at you see are the computations

Question

2018/9/10 Exercise not in the 4th edition 1. Wh at you see are the computations of ROI for three divisions. Division A: ROI $300,000 $6,000,000 Division B: ROI $6,000,000 $1,500,000 $10,000,000 $5,000,000 Division C: ROI = $180,000 × $8,000,000 = 2.25% × 4-990 $900,000 $10,000,000 = 996 × 2 = 18% $8,000,000 $%2,000,000 After reading the solution, practice reading! . Indicate which one has the highest margin? . Which division has the lowest turnover? Which divison is the most effective and efficient in how it is managing its assets? e

Explanation / Answer

ROI = EBIT/Sales * Sales/Capital employed

ROI = Margin*turnover ratio

a) Division B has highest margin of 9%

b) Division B has the lowest turnover ratio of 2.

c) Division A is most effective and efficient as it has highest ROI and highest turnover ratio.

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