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Analyzing how changes in sales, expenses, and assets affect Return on Investment (ROI)

Comparison of Performance Using Return on Investment (ROI)

Comparative data on here companies in the same service industry are given below:

Sales $4,000,000 $1,500,000 $ ?
Net operating income $560,000 $210,000 $ ?
Average operating assets..... $2,000,000 ? $3,000,000
Margin................... ? ? 3.5%
Turnover............. ? ? 2
Return on investment (ROI)......... ? 7% ?

1. What advantages are there to breaking down the ROI computation into two separate elements, margin and turnover?
2. Fill in the missing information above, and comment on the relative performance of the three companies in as much detail as the data permit. Make specific recommendations about how to improve the ROI.

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Solution Preview

Dear Student,
Please find the excel sheet with completed table attached.

Net operating income (NOI): Income before interest and taxes (EBIT)

Average Operating Assets (AOA): Cash, accounts receivable, inventory, plant and equipment, and other productive ...

Solution Summary

Solution provides completed equations and written explanation, using Excel, of the Return on Investment (ROI). Expert explains how changes in sales, expenses, and assets affect ROI. Basic computing equations are provided in solution while a more detailed equational explanation is provided in an attached Excel document.