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Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall
Edition 9ISBN: 0073527068Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall
Edition 9ISBN: 0073527068Investment center analysis; ROI and residual income The Central Division of American, Inc., has operating income of $19,200 on sales revenue of $160,000. Divisional operating assets are $100,000, and management of American has determined that a minimum return of 16% should be expected from all investments.
Required:
a. Using the DuPont model, calculate The Central Division’s margin, turnover, and ROI.
b.Calculate The Central Division”s residual income.
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Investment center analysis, ROI, Residual income, and DuPont Performance Analysis
Investment center analysis :
• In this method of analysis, companies estimate the results (profits) of an investment center (corporate headquarters) according to the revenues it gets in through investments within capital assets balanced to the whole expenses.
• The two important tools of an investment center are (a) ROI and (b) residual income of the investment.
ROI :
It is a performance measure tool used to estimate the effectiveness of an investment or to check the competency of a particular investment with a numeral of different investments.
Residual income :
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