(1)
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
To prepare: The income statements for B and C Divisions of Company P for the year ended December 31, 2016.
(2)
Profit margin: This ratio gauges the operating profitability by quantifying the amount of income earned from business operations from the sales generated.
Formula of profit margin:
Investment turnover: This ratio gauges the operating efficiency by quantifying the amount of sales generated from the assets invested.
Formula of investment turnover:
Formula of ROI according to Dupont formula:
To determine: Profit margin, investment turnover, and return on investment of B and C Divisions
(3)
Residual income: The remaining income from operations after deducting the desired acceptable income is referred to as residual income.
Formula of residual income:
Income from operations | XXX |
Less minimum acceptable income from operations as a percent of invested assets | XXX |
Residual income | XXX |
Table (2)
To determine: Residual income of for B and C Divisions
(4)
The profitable division by using the performance measures of income from operations, ROI, and residual income.
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