Question

In: Accounting

Jake’s Sporting Goods presented two years of data for its Clothing Division and Sports Equipment Division....

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.

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago

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