Simple ROI and residual Income calculations
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DIVISION
______________________________________
X Y Z
Invested capital $2,000,000 $_________ $1,250,000
Income $________ $ 182,000 $ 150,000
Revenue $4,000,000 $3,640,000 $________
Income % of revenue $ 2.5% _________% ________%
Capitol turnover __________ _________ 3
Rate of return on
invested capital _________% _______14% _________%
1. Prepare a similiar tabular presentation, filling in all blanks.
2. Which division is the best performer?
3. Suppose each division is assessed an imputed interest rate of 12% on invested captial, compute the residual income for each division.
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Simple ROI and residual Income calculations are achieved.
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Hello!
Question 1
In order to fill in the blanks, we need to make use of the following identities:
1. Income % of Revenue = (Income/Revenue)*100
2. Capital Turnover = Revenue/Capital
3. Rate of Return on Invested Capital = (Income/Capital)*100
So let's calculate the blanks for each division.
- Division X
We need to find Income. Using identity 1, we have:
2.5 = (Income/4,000,000)*100
Income = 2.5*4,000,000/100 = $100,000
So Income is $100,000 for division X.
Using identity 2, we find Capital Turnover:
Capital Turnover = 4,000,000/2,000,000 = 2
Finally, using identity 3, we ...
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