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Computing and Interpreting Return on Investment (ROI)

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below (the currency is the Australian dollar, denoted here as $):

Division

Queensland New South Wales
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000,000 $7,000,000
Average operating assets . . . . . . . . . . . . . . . . $2,000,000 $2,000,000
Net operating income . . . . . . . . . . . . . . . . . . . $360,000 $420,000
Property, plant, and equipment (net) . . . . . . . . $950,000 $800,000

1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover.
2. Which divisional manager seems to be doing the better job? Why?

Solution Preview

1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover.

ROI = Margin* Turnover
Margin = Net Operating ...

Solution Summary

This solution provides assistance with computing and interpreting the return on a particular investment.

$2.19