Question

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc. Balance Sheet
	Beginning Balance		Ending Balance
Assets
Cash	$	133,000	$	129,000
Accounts receivable		331,000		475,000
Inventory		565,000		485,000
Plant and equipment, net		891,000		871,000
Investment in Buisson, S.A.		404,000		430,000
Land (undeveloped)		252,000		251,000
Total assets	$	2,576,000	$	2,641,000
Liabilities and Stockholders' Equity
Accounts payable	$	374,000	$	337,000
Long-term debt		1,025,000		1,025,000
Stockholders' equity		1,177,000		1,279,000
Total liabilities and stockholders' equity	$	2,576,000	$	2,641,000

Joel de Paris, Inc. Income Statement
Sales		$	5,238,000
Operating expenses			4,557,060
Net operating income			680,940
Interest and taxes:
Interest expense	$ 120,000
Tax expense	206,000		326,000
Net income		$	354,940
I am having trouble finding the margin percentage, the turnover percentage, and the ROI. I also need to find the net operating inclome, minimum required return, and the residual income. Thank you!

Answer 1

Requirement – 1, company’s margin, turnover, and return on investment (ROI) for last year

	Beginning Balances	Ending Balances
Cash	133,000	129,000
Accounts receivable	331,000	475,000
Inventory	565,000	485,000
Plant and equipment (net)	891,000	871,000
Total operating assets	19,20,000	19,60,000

Average operating assets = ($19,20,000 + 19,60,000) / 2 = 19,40,000

Company’s Margin       = [ Net operating income / Sales ] x 100

= [ $680,940 / 52,38,000 ] x 100

= 13%

Company’s Turnover    =Sales / Average operating assets

                                       = $52,38,000 / 19,40,000

                                       = 2.70

Company’s ROI           = Margin × Turnover = 13% x 2.70   = 35.1%

Requirement – 2, Company’s residual income last year

Net operating income	$680,940
Less : Minimum required return        ($19,40,000 x 15%)	291,000
Residual income	$389,940