Question

In: Accounting

GNC Holdings Inc. is a leading retailer of health and nutrition products, which are sold through...

GNC Holdings Inc. is a leading retailer of health and nutrition products, which are sold through both company-operated (3,500 outlets) and franchised retail (3,200 outlets) stores. In addition, GNC manufactures many of the products that it sells through its company-operated and franchised channels. As such, GNC's operating segments are Retail, Franchise and Manufacturing. The Retail segment is made up of company-operated stores, and the Franchise segment is made up of franchised stores. Recent financial information from these segments is as follows (in millions):

Retail

Franchise

Manufacturing

Sales

$1,939

$433

$486

Income from operations

349

157

90

Invested assets

1,573

512

407

Determine the profit margin for each segment. (Round percentages to one decimal place.)

Why might the profit margin of the Franchise segment be larger than the other two segments?

Determine the investment turnover for each segment. (Round to one decimal place.)

Use the DuPont formula to determine the return on investment for each segment. (Round percentages to one decimal place.)

What is the source of revenues for the Manufacturing segment? What are the revenue reporting considerations for sales to company-operated stores?

Solutions

Expert Solution

Department

Retail

Franchise

Manufacturing

Sales

                 1,939

              433

                     486

Income from operations

                    349

              157

                        90

Invested assets

                 1,573

              512

                     407

Determine the profit margin for each segment.

Retail

Franchise

Manufacturing

Income from operations

349

157

90

Divided by: Sales

1939

433

486

Profit margin for each segment

17.9990%

36.2587%

18.5185%

Profit margin for each segment (Rounding)

18.0%

36.3%

18.5%

Why might the profit margin of the Franchise segment be larger than the other two segments?

Profit margin of the Franchise segment be larger than the other two segment because It operation income in proportionate of sales is higher due to less Operating cost.

Determine the investment turnover for each segment.

Retail

Franchise

Manufacturing

Sales

1939

433

486

Divided by: Invested assets

1573

512

407

Investment turnover for each segment

1.23268

0.84570

1.19410

Investment turnover for each segment (Rounding)

1.2

0.8

1.2

Use the DuPont formula to determine the return on investment for each segment. (Round percentages to one decimal place.)

Retail

Franchise

Manufacturing

Profit margin for each segment

17.9990%

36.2587%

18.5185%

Investment turnover for each segment

1.23268

0.84570

1.19410

Return on investment for each segment (Multiply of above both)

22.18690%

30.66406%

22.11302%

Return on investment for each segment (Rounding)

22.2%

30.7%

22.1%

What is the source of revenues for the Manufacturing segment? What are the revenue reporting considerations for sales to company-operated stores?

Source of revenues for the Manufacturing segment is selling of Inventory produced. Revenue reporting consideration for sale to company - operated stores, it is better to reporting of revenue at market price. (I mean if company sold goods to its internal division then it is better to evaluate the department data on Market price Basis transfer rather than cost of production.

ekkarill92 answered 1 year ago
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