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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Profit margin, investment turnover, and return on investment
The condensed income statement for the International Division of Valgenti Inc. is as follows (assuming no service department charges)

The manager of the International Division is considering ways to increase the return on investment.

a.Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the International Division, assuming that $20,000,000 of assets have been invested in the International Division.
b.If expenses could be reduced by $240,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the International Division?

To determine

Concept Introduction:

Profit Margins: It is a measure which is generally used by the organization to find out the best department in the organization in terms of profit. To calculate the profit margins divide the profits with sales.

Investment Turnover ratio: In this we divide the sales value by the investment in fixed assets. Its helps us to find out the amount we sold in that investment.

Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.

Requirement-1:

To Identify:

Find the profit margins, investment turnover and the return on investment of the organization.

Explanation

Profit Margin= Profit/ Sales

= 3840000/ 24000000

= 16%

Investment Turnover= Sales/ Investment

=...

To determine

Concept Introduction:

Profit Margins: It is a measure which is generally used by the organization to find out the best department in the organization in terms of profit. To calculate the profit margins divide the profits with sales.

Investment Turnover ratio: In this we divide the sales value by the investment in fixed assets. Its helps us to find out the amount we sold in that investment.

Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.

Requirement-1:

To Identify:

Find the profit margins, investment turnover and the return on investment of the organization if expenses reduce by 240000.

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