Answer:
2017
ROI = 18%
Profit Margin = 30%
2018
ROI = 25.2%
Investment Turnover = 84%
Explanation:
The formulas for the required ratio are as follows,
ROI = Operating income / Average invested assets
Profit margin = Operating Income / Sales
For 2017,
ROI = 6,948,000 / 38,600,000 = 0.18 = 18%
Profit margin = 6,948,000 / 23,160,000 = 0.3 = 30% of sales
For 2018, we compute increased sales first
Sales = 23,160,000 * 1.4 = $32,424,000 after 40% increase
with profit margin staying the same, profit for 2018
Profit = $32,424,000 * 0.3 = $9,727,200
Using the earlier formulas,
ROI = $9,727,200 / 38,600,000 = 0.252 = 25.2%
Investment turnover = Sales / Average invested assets
Investment Turnover = $32,424,000 / 38,600,000 = 0.84 = 84%
Hope that helps.
Answer:
1. Return on investment for 2017
ROI = Operating income/Average invested assets x 100
ROI = $6,948,000/$38,600,000 x 100
ROI = 18%
2. Profit margin for 2017
Profit margin
= Operating income/Sales x 100
= $6,948,000/$23,160,000 x 100
= 30%
3. Forecast sales for 2018
= 140% x $23,160,000
= $32,424,000
Forecast operating income for 2018
= 140% x $6,848,000
= $9,587,200
Return on investment in 2018
ROI = $9,587,200/$38,600,000 x 100
ROI = 24.84%
4. Investment turnover for 2018
= Sales/Average invested assets x 100
= $32,424,000/$38,600,000
= 0.84 times
Explanation:
Return on investment is the ratio of operating income to average invested assets
Profit margin is the ratio of operating income to sales
Since forecast sales in 2018 increased by 40%, thus, the forecast sales are 140% of original sales (140% x $23,160,000), Increase in sales increases the operating income by 40% (140% x $6,948,000).
Investment turnover is the ratio of sales to average invested assets.
