CommercialServicescom Corporation provides businesstobusines

CommercialServices.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

Sales $ 10,640,000

Net operating income $ 744,800

Average operating assets $ 3,800,000

1. Compute the company\'s margin, turnover and return on investment (ROI). (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin:

Turnover:

ROI:

2. The entrepreneur who founded the company is convinced that sales will increase next year by 120% and that net operating income will increase by 340%, with no increase in average operating assets. What would be the company’s ROI? (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin:

Turnover:

ROI:

3. The Chief Financial Officer of the company believes a more realistic scenario would be a $3,500,000 increase in sales, requiring a $618,750 increase in average operating assets, with a resulting $513,660 increase in net operating income. What would be the company’s ROI in this scenario? (Round your Turnover answer to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Margin:

Turnover:

ROI:

Solution

Answer 1.

Margin = Net Operating Income / Sales
Margin = $744,800 / $10,640,000
Margin = 7.00%

Turnover = Sales / Average Operating Assets
Turnover = $10,640,000 / $3,800,000
Turnover = 2.80

Return on Investment = Margin * Turnover
Return on Investment = 7.0% * 2.80
Return on Investment = 19.60%

Answer 2.

Sales = $10,640,000 + 120% * $10,640,000
Sales = $23,408,000

Net Operating Income = $744,800 + 340% * $744,800
Net Operating Income = $3,277,120

Margin = Net Operating Income / Sales
Margin = $3,277,120 / $23,408,000
Margin = 14.00%

Turnover = Sales / Average Operating Assets
Turnover = $23,408,000 / $3,800,000
Turnover = 6.16

Return on Investment = Margin * Turnover
Return on Investment = 14.0% * 6.16
Return on Investment = 86.24%

Answer 3.

Sales = $10,640,000 + $3,500,000
Sales = $14,140,000

Net Operating Income = $744,800 + $513,660
Net Operating Income = $1,258,460

Average Operating Assets = $3,800,000 + $618,750
Average Operating Assets = $4,418,750

Margin = Net Operating Income / Sales
Margin = $1,258,460 / $14,140,000
Margin = 8.90%

Turnover = Sales / Average Operating Assets
Turnover = $14,140,000 / $4,418,750
Turnover = 3.20

Return on Investment = Margin * Turnover
Return on Investment = 8.90% * 3.20
Return on Investment = 28.48%