Asian Division
a. Sales Margin = Operating Income/Sales = 92,000/460,000 = 20%
b. Capital turnover = Sales/Average operating assets = 460,000/368,000=1.25
c. ROI = Margin X Turnover = 20%X1.25 = 25%
d. Residual income = Operating Income - Imputed interest X Average operating assets
= 92,000-24% X 368,000 = $3,680
e. EVA = Operating Income X (1-tax rate) - WACC X Average operating assets
= 92,000 X (1-0.18) - 14% X 368,000 = $23,920
European Division
a. Sales Margin = Operating Income/Sales = 90,000/900,000 = 10%
b. Capital Turnover = Sales/Average operating assets = 900,000/750,000=1.2
c. ROI = Margin X Turnover = 10%X1.2 = 12%
d. Residual ...
Solution Summary
The solution explains how to calculate sales margin, capital turnover, ROI and EVA for each division
... Table 11.2 Why are Profit Margins Important ... P/E Ratio (5- Return on Profit Margin (Return Total Asset year avg.) Equity (%) on Sales, %) Turnover Leverage Ratio ...
... income 80,000 30,000 Average operating assets 320,000 200,000 Weighted average cost of capital 15% 15%. ... a. Margin = Operating Income/Sales Division A ...
... Division controllable margin (before imputed capital charge) $250,000 Less imputed ... which is then transferred to the Sales Division for sale to outside ...
... This can also lead to reduction in cost of capital and increase in share ... The higher a company's profit margin the better ... 2. Asset Turnover = Sales / Total Assets ...
... High Leverage A business with very high gross margin is said to be highly leveraged: a business with high sales, with each sale contributing a small ...
