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Accountants often express ROI as the product of two components-capital turnover and return on...

Question:

Accountants often express ROI as the product of two components-capital turnover and return on sales. You are considering investing in one of three companies, all in the same industry, and are given the following information:

Adam

Sales $8,500,000

Income $765,000

Capital $3,200,000

Basil

Sales $1,500,000

Income $180,000

Capital $12,000,000

Collin

Sales $29,000,000

Income $180,000

Capital $12,000,000

Why would you desire the breakdown of return on investment into return on sales and turnover on capital?

Compute the return on sales, turnover on capital, and ROI for the three companies, and comment on the relative performance of the companies as thoroughly as the data permit.

Notice that Basil and Collin have the same income and capital but vastly different levels of sales. Discuss the types of strategies that Basil and Collin might be employing.

Return on Investment:

Return on investment is acknowledged as the return or income earned by an organization or an individual on the amount invested by them either in a business, project or financial securities. The return on investment in a business can be the net profit earned in comparison with the capital employed and for a financial security it can be the dividend or interest income earned during the investment period.

Answer and Explanation: 1

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a) Return on investment represents the total return earned on the capital employed by an organization whereas the return on sales represents the...

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Return on Investment: Definition, Formula & Example

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Chapter 25 / Lesson 6
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Find out how to calculate the return on investment. View the return on investment formula applied to real-world examples and explore how to analyze ROI.


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