(a)
Income from operations: Income statement reports revenues and expenses from business operations, and the result of those operations, before taxes, other revenues and expenses, is referred to as income from operations.
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:
Return on investment (ROI): This financial ratio evaluates how efficiently the assets are used in earning income from operations. So, ROI is a tool used to measure and compare the performance of a units or divisions or a companies.
Formula of ROI according to Dupont formula:
To compute: Selling, general, and administrative expenses of each segment.
(b)
To compute: Property, plant, and equipment portion of each segment
(c)
To compute: Income from operations for CO and F Segments
(d)
To compute: Profit margin of each of the segments
(e)
Investment turnover of each of the segments
(f)
ROI of each of the segments using DuPont formula
(g)
To discuss: The variables that would impact the franchised Company HR in comparison to the non-franchised independent company.
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Chapter 23 Solutions
Financial & Managerial Accounting
- Effect of Industry Characteristics on Financial Statement Relations: A Global Perspective. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.24 (pages 6667) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. A list of the 12 companies, the country of their headquarters, and a brief description of their activities follow. A. Accor (France): Worlds largest hotel group, operating hotels under the names of Sofitel, Novotel, Motel 6, and others. Accor has grown in recent years by acquiring established hotel chains. B. Carrefour (France): Operates grocery supermarkets and hypermarkets in Europe, Latin America, and Asia. C. Deutsche Telekom (Germany): Europes largest provider of wired and wireless telecommunication services. The telecommunications industry has experienced increased deregulation in recent years. D. E.ON AG (Germany): One of the major public utility companies in Europe and the worlds largest privately owned energy service provider. E. Fortis (Netherlands): Offers insurance and banking services. Operating revenues include insurance premiums received, investment income, and interest revenue on loans. Operating expenses include amounts actually paid or amounts it expects to pay in the future on insurance coverage outstanding during the year. F. Interpublic Group (U.S.): Creates advertising copy for clients. Interpublic purchases advertising time and space from various media and sells it to clients. Operating revenues represent the commissions or fees earned for creating advertising copy and selling media time and space. Operating expenses include employee compensation. G. Marks Spencer (U.K.): Operates department stores in England and other retail stores in Europe and the United States. Offers its own credit card for customers purchases. H. Nestl (Switzerland): Worlds largest food processor, offering prepared foods, coffees, milk-based products, and mineral waters. I. Roche Holding (Switzerland): Creates, manufactures, and distributes a wide variety of prescription drugs. J. Sumitomo Metal (Japan): Manufacturer and seller of steel sheets and plates and other construction materials. K. Sun Microsystems (U.S.): Designs, manufactures, and sells workstations and servers used to maintain integrated computer networks. Sun outsources the manufacture of many of its computer components. L. Toyota Motor (Japan): Manufactures automobiles and offers financing services to its customers. REQUIRED Use the ratios to match the companies in Exhibit 1.24 with the firms listed above.arrow_forwardTransfer Pricing; International Taxation Crain Company has a manufacturing subsidiary inSingapore that produces high-end exercise equipment for U.S. consumers. The manufacturing subsidiary has total manufacturing costs of $1,500,000, plus general and administrative expenses of$350,000. The manufacturing unit sells the equipment for $2,500,000 to the U.S. marketing subsidiary, which sells it to the final consumer for an aggregate of $3,500,000. The sales subsidiary hastotal marketing, general, and administrative costs of $200,000. Assume that Singapore has a corporate tax rate of 33% and that the U.S. tax rate is 46%. Assume that no tax treaties or other special taxtreatments apply.Required What is the effect on Crain Company’s total corporate-level taxes if the manufacturing subsidiary raises its price to the sales subsidiary by 20%?arrow_forwardPercentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations. You can select TEN well know Companies operating in America involve in the exports of their products. Calculate their proportion of local and overseas revenues and also dig the income proportion from local and overseas operations as well.arrow_forward
- 4. Nagy Corporation’s International Division consists of two of Nagy’s subsidiaries. One of the subsidiaries operates in the United Kingdom and the other on the European continent. The U.K. subsidiary had identical sales revenue amounts, as measured in British pounds, in 20X1 and 20X2 and reported a 25% gross profit margin in both years. Similarly, the European subsidiary’s sales revenue was the same in 20X1 and 20X2 when measured in euros. It reported a 33.33% gross profit margin in both years. Both subsidiaries account for their inventories under FIFO. Assume the British pound was rising steadily in value versus the U.S. dollar throughout 20X1 and 20X2. Assume the euro was declining steadily in value versus the U.S. dollar throughout 20X1 and 20X2. Required: 1. If Nagy uses the current rate method to translate the British subsidiary’s financial statements into U.S. dollars, how is the British subsidiary’s 20X2 gross margin percentage, based on its U.S. dollar financial…arrow_forwardA U.S. manufacturing company operating a subsidiary in an LDC (less-developed country) shows the following results: U.S. LDCSales (units) 100,000 20,000Labor (hours) 20,000 15,000Raw materials (currency) $20,000 FC 20,000Capital equipment (hours) 60,000 5,000a. a. Calculate partial labor and capital productivity i gures for the parent and subsidiary. Do the results seem confusing?b. Compute the multifactor productivity i gures for labor and capital…arrow_forwardSegment Analysis for a Service Company Charles Schwab Corporation is one of the more innovative brokerage and financial service companies in the United States. The company recently provided information about its major business segments as follows (in millions): Investor Advisor Services Services Revenues $7,321 $2,811 Income from operations 3,176 1,386 Depreciation 186 120 a. The ____ segment serves the retail customer, you and me. These include brokerage, Internet, and mutual fund services. The ____ segment includes the same services provided for financial institutions, such as banks, mutual fund managers, insurance companies, and pension plan administrators. b. Indicate whether the following costs are a “Variable Cost” or a “Fixed Cost” in the “Investor Services“. 1. Commissions to brokers _____2. Fees paid to exchanges for executing trades_____ 3. Depreciation on brokerage offices _______4. Transaction fees incurred by Schwab mutual funds to…arrow_forward
- McDonald’s conducts operations worldwide and is managed in three primary geographic segments: U.S., International Lead Markets (including Australia, Canada, France, Germany, and the UK), and High Growth Markets (including China, Italy, Korea, Poland, Russia, Spain, Switzerland, and the Netherlands). A hybrid geographic/corporate segment, Foundational Markets & Corporate, reports on the results of all other countries as well as any unallocated amounts. McDonald’s allocates resources to, and evaluates the performance of, its segments based on operating income. The asset totals disclosed by geography are directly managed by those regions and include accounts receivable, inventory, certain fixed assets, and certain other assets. Corporate assets primarily include cash and cash equivalents, investments, deferred tax assets, and other assets. Refer to the following geographic segment data (in millions) from the 2017 annual report of McDonald’s Corp.:arrow_forward1.Assuming EMERALD Corporation is engaged in exporting goods, as well as local selling of goods.EMERALD had the following data for 2021:Export Sales, net of VAT 2,000,000Local Sales, gross of VAT 1,120,000Input tax directly allocable to export sales 100,000Input tax directly allocable to local sales 40,000Input tax not allocable to any sales 30,000 Required: Determine the VAT payable, assuming input tax on zero rated sales are claim for taxrefund. 2.EMERALD Corporation has the following sales during the month:Sale to private entities subject to 12% - 100,000Sale to private entities subject to 0% - 100,000Sale of exempt goods - 100,000Sale to gov’t. subjected to 5% final VAT Withholding - 100,000Total sales for the month - 400,000The following input taxes were passed on by its VAT suppliers:Input tax on taxable goods (12%) - 5,000Input tax on zero-rated sales - 3,000Input tax on sale of exempt goods - 2,000Input tax on sale to government - 4,000Input tax on depreciable capital goodnot…arrow_forward4. Katie analyzes the dollar-based consolidated financial statements of a company that owns a foreign subsidiary. Katie observes that the foreign subsidiary’s sales increased by 24% compared to last year. Katie should be aware that the results Multiple Choice a) will be lower if the currency rate increased during the reporting period. b) will be same if she recalculates the sales trend using the consolidated revenue. c) may differ if she bases the calculation on the foreign currency. d) are verifiable using the foreign currency rate in effect at the end of the year.arrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning