Chapa a national manufacturer of lawnmowing and snowblowing

Chapa a national manufacturer of? lawn-mowing and? snow-blowing equipment, segments its business according to customer? type: professional and residential. The following divisional information was available for the past? year

Net Sales

Operating Income

Average Total Assets

Residential

$500,000

$59,150

$182,000

Professional

1,000,000

152,800

382,000

Management has a

23% target rate of return for each division

Requirements

1. Calculate each? division\'s ROI. Round all of your answers to four decimal places.

2. Calculate each? division\'s profit margin ratio. Interpret your results.

3.Calculate each? division\'s asset turnover ratio. Interpret your results.

4.Use the expanded ROI formula to confirm your results from Requirement 1. What can you? conclude?

	Net Sales	Operating Income	Average Total Assets
Residential	$500,000	$59,150		$182,000
Professional	1,000,000	152,800		382,000

Solution

1) Division Net Sales Operating Income Average Total Assets ROI Residential 500000 59150 182000 32.5000% Professional 1000000 152800 382000 40.0000% 2) Division Net Sales Operating Income Average Total Assets Profit Margin Residential 500000 59150 182000 11.8300% Professional 1000000 152800 382000 15.2800% The Professional division has higher profit margin ratio. 3) Division Net Sales Operating Income Average Total Assets Asset turnover ratio Residential 500000 59150 182000 2.7473 Professional 1000000 152800 382000 2.6178 4) Division Profit Margin Asset turnover ratio ROI Residential 11.8300% 2.7473 32.500% Professional 15.2800% 2.6178 40.000% Expanded ROI formula = Profit margin * Asset turnover ratio.