Question

In: Accounting

The Magnetic Imaging Division of Medical Diagnostics, Inc. has reported the following results for last year's operations:

Sales : $25 million

Net operating income : $3 million

Average operating income : $10 million

Compute the Magnetic Imaging Division's ROI.

Expert Solution

To compute the ROI, here is the formula:

ROI = Margin x turnover

Margin = Net operating income/sales

Turnover = Sales/Average operating assets

So:

ROI = Margin x Turnover

Margin = Net operating income/sales

= $3,000,000/$25,000,000

= 12%

Turnover = Sales/Average operating assets

= $25,000,000/$10,000,000

= 2.5

ROI = 12% x 2.5

= 30%

We get 12% for the margin and 2.5 times for the turnover.

So, the ROI of Magnetic Imaging Division is 30%.

ROI = 30%

Bil answered 2 years ago

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