Question
In: Accounting
Return on investment (ROI) is often expressed as follows: Income / Investment = Income / Revenues...
Return on investment (ROI) is often expressed as follows: Income / Investment = Income / Revenues x Revenues / Investment
1. What advantages are there in the breakdown of the computation into two separate components?
2. Fill in the blanks for the following table:
|
Companies in Same Industry |
||||||
|
A |
B |
C |
||||
|
Revenues |
$1,600,000 |
$1,300,000 |
? |
|||
|
Income |
$96,000 |
$78,000 |
? |
|||
|
Investment |
$800,000 |
? |
$2,600,000 |
|||
|
Income as a percentage of revenues |
? |
? |
1.5 |
% |
||
|
Investment turnover |
? |
? |
2 |
|||
|
ROI |
? |
3 |
% |
? |
||
After filling in the blanks, comment on the relative performance of these companies as thoroughly as the data permit.
Solutions
Expert Solution
| A | B | C | |
| REVENUE | 1600000 | 1300000 |
5200000 [REVENUE/INVESTMENT = INVESTMENT TURNOVER] |
| INCOME | 96000 | 78000 |
78000 [INCOME/5200000]=0.015 |
| INVESTMENT | 800000 |
2600000 [78000/INVESTMENT] = 0.03 |
2600000 |
| INCOME AS % OF REVENUES |
6% [96000/1600000] |
6% [78000/1300000] |
1.5 |
| INVESTMENT TURNOVER |
2 [1600000/800000] |
0.5 [1300000/2600000] |
2 |
| ROI | [96000/800000]12% | 3% |
3% [78000/2600000] |
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