Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:
|Net operating income||$855,000||$2,750,000|
|Average operating assets||$2,375,000||$12,500,000|
1. For each division, compute the return on investment (ROI) in terms of margin and turnover.
2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 18%. Compute the residual income for each division.
3. Is Yokohama's greater amount of residual income an indication that it is better managed?
Companies are often divided into divisions based on product line, location, etc. To evaluation how each division is doing can give insight as to why a company as a whole is doing. Common measures of a division's performance are residual income and return on investment (ROI).
Answer and Explanation: 1
The margin is calculated using the following formula.
- Margin = Net operating income / Sales
- Margin = $855,000 /...
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fromChapter 25 / Lesson 6
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.