   Chapter 14, Problem 4SEQ

Chapter
Section
Textbook Problem

Division L of Liddy Co. has a return on investment of 24% and an investment turnover of 1.6. What is the profit margin? A. 6% B. 15% C. 24% D.38%

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

To Calculate:

The Profit Margin

Explanation

The Profit Margin is calculated as follows:

Return on Investment  24%

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