In: Accounting
Jake’s Sporting Goods presented two years of data for its Clothing Division and Sports Equipment Division. Clothing Division: Year 1 Year 2 Sales $21,550,000 $22,320,000 Operating Income 2,430,000 1,960,000 Average Operating Assets 5,150,000 5,150,000 Sports Equipment Division: Year 1 Year 2 Sales $28,070,000 $31,250,000 Operating Income 475,000 1,006,000 Average Operating Assets 7,012,000 7,012,000
PART A Compute the ROI and the margin and turnover ratios for the first year for the Clothing Division.
PART B Compute the ROI and the margin and turnover ratios for the second year for the Sports Equipment Division.
PART C Based on the ratios you calculated in Parts A and B, how does the clothing division in year 1 compare to the sports equipment division in year 2? Explain.
PART – A, The ROI and the margin and turnover ratios for the first year for the Clothing Division.
Return on Investment
Return on Investment = [Net Operating Income / Average operating assets] x 100
= [$24,30,000 / 51,50,000] x 100
= 47.18%
Margin
Margin = [Net Operating Income / Sales] x 100
= [$24,30,000 / 215,50,000] x 100
= 11.28%
Turnover
Turnover = Sales / Average Operating Assets
= $215,50,000 / 51,50,000
= 4.18 Times
PART – B, The ROI and the margin and turnover ratios for the second year for the Sports Equipment Division
Return on Investment
Return on Investment = [Net Operating Income / Average operating assets] x 100
= [$10,06,000 / 70,12,000] x 100
= 14.35%
Margin
Margin = [Net Operating Income / Sales] x 100
= [$10,06,000 / 312,50,000] x 100
= 3.22%
Turnover
Turnover = Sales / Average Operating Assets
= $312,50,000 / 70,12,000
= 4.46 Times
PART – C, COMPARISON
-ROI of Clothing Division for year 1 is 47.18% whereas the ROI of Sports Division for year is decreased to 14.35%
-Margin of Clothing Division for year 1 is 11.28% whereas the ROI of Sports Division for year is decreased to 3.22%
-Turnover Clothing Division for year 1 is 4.48 Times whereas the ROI of Sports Division for year is Increased to 4.46 Times