Return on investment is often expressed as? follows: Income / Investment = Income / Revenues x Revenues / Investment A. What are the advantages of breaking down the computation into two separate components?
1. The breakdown stresses the possibility of trading off investment turnover for income as a percentage of revenue?
2. The breakdown stresses the possibility of trading off investment turnover for total assets as a percentage of investment
3. The importance of investment turnover as a key to income is stressed
4. The importance of required rate of return as a key to income is stressed
5. The importance of revenues is explicitly recognized
6. The importance of total assets is explicitly recognized
7. The important components are expressed as dollar figure instead of ratio or percentages
8. The important components are expressed as ratio or percentages instead of dollar figure
B. Fill in the table below. Show your calculations.
A B C
Revenues $1,600,000 $1,300,000 ?
Income $96,000 $78,000 ?
Investment $800,000 ? $2,600,000
Income as a percentage
of revenues ? % ? % 1.5%
Investment
turnover ? ? 2.0
ROI ? % 3% ? %
Comment on the relative performance of these companies as thoroughly as the data permit.
Income and investment alone shedlight on comparative performances. Thus, wedetermine whether B'sROI in comparison with A's is attributable to itsinvestment or itsincome.
Company B doesCompany A in terms of income margin. Company B has aturnover of investment than does Company A. Company C's investment turnover isCompany A's. Company C's income as a percentage of revenue isCompany A's.
Company B should emphasize increasing investment turnover by reducingor increasingCompany C's management should concentrate on increasing its income as a percentage of revenues by increasing only its.