Question

Exercise 12-1 Compute the Return on Investment (ROI) [LO12-1]

Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below:

Sales	$	17,400,000
Net operating income	$	4,700,000
Average operating assets	$	35,900,000

Required:

1. Compute the margin for Alyeska Services Company. (Round your answer to 2 decimal places.)

2.Compute the turnover for Alyeska Services Company. (Round your answer to 2 decimal places.)

3. Compute the return on investment (ROI) for Alyeska Services Company. (Round your intermediate calculations and final answer to 2 decimal places.)

Answer 1

Solution :

1.Computation of margin for Alyeska Services Company :

The formula for calculating the margin is

= Net Operating Income / Sales

As per the information given in the question we have

Net operating income = $ 4,700,000   ;   Sales = $ 17,400,000

Applying the above information in the formula we have

Margin = $ 4,700,000 / $ 17,400,000

= 0.270115

= 27.0115 %

= 27.01 % ( When rounded off to two decimal places )

Thus the margin for Alyeska Services Company = 27.01 %

2.Computation of turnover for Alyeska Services Company :

The formula for calculating the turnover is

= Sales / Average operating assets

As per the information given in the question we have

Sales = $ 17,400,000 ; Average operating assets = $ 35,900,000

Applying the above information in the formula we have

Turnover = $ 17,400,000 / $ 35,900,000

= 0.484680

= 48.4680 %

= 48.47 % ( When rounded off to two decimal places )

Thus the turnover for Alyeska Services Company = 48.47 %

3.Computation of Return on Investment (ROI) for Alyeska Services Company :

The formula for calculating the Return on Investment is

= Net operating income / Average operating assets

As per the information given in the question we have

Net Operating Income = $ 4,700,000   ; Average operating assets = $ 35,900,000

Applying the above information in the formula we have

Return on Investment = $ 4,700,000 / $ 35,900,000

= 0.130919

=13.0919 %

= 13.09 % ( When rounded off to two decimal places )

Thus the Return on Investment (ROI) for Alyeska Services Company = 13.09 %