Question

In: Accounting

Computing profit Margin, Turnovers, and Return on investments

Munoz Corporation’s balance sheet indicates that the company has $600,000 invested in operating assets. During Year 2, Munoz earned operating income of $72,000 on $1,200,000 of sales.

 

Required

  1. Compute Munoz’s profit margin for Year 2.

  2. Compute Munoz’s turnover for Year 2.

  3. Compute Munoz’s return on investment for Year 2.

 

Solutions

Expert Solution

a. Profit Margin

Margin= Operating income / Sales

M= 72,000 / 1,200,000

M= 0.06 or 6%

b. Turnover

Turnover = Sales / Operating Assets

T= 1,200,000600,000 

T= 2 times

c. Return on investment

ROI= Margin x Turnover

ROI = 6.0% x 2 times

ROI= 12.0%

 

 


The Profit Margin is 6.0%

The Turnover is 2 times

The Return on Investment is 12.0%

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