Evaluating division performance over time The Norsk Division of Gridiron Concepts Inc. has been experiencing revenue and profit growth during the years 2014–2016. The divisional income statements follow:

Gridiron Concepts Inc.

Divisional Income Statements, Norsk Division For the Years Ended December 31, 2014–2016 2014 2015 2016 Sales $1,470,000 $2,100,000 $2,450,000 Cost of goods sold 1,064,000 1,498,000 1,680,000 Gross profit $ 406,000 $ 602,000 $ 770,000 Operating expenses 185,500 224,000 231,000 Income from operations $ 220,500 $ 378,000 $ 539,000 Assume that there are no charges from service departments. The vice president of the division, Tom Yang, is proud of his division’s performance over the last three years. The president of Gridiron Concepts Inc., Anna Evans, is discussing the division’s performance with Tom, as follows:

Tom: As you can see, we’ve had a successful three years in the Norsk Division.

Anna: I’m not too sure.

Tom: What do you mean? Look at our results. Our income from operations has more than doubled, while our profit margins are improving.

Anna: I am looking at your results. However, your income statements fail to include one very important piece of information, namely, the invested assets. You have been investing a great deal of assets into the division. You had

$735,000 in invested assets in 2014, $1,500,000 in 2015, and $3,500,000 in 2016.

Tom: You are right. I’ve needed the assets in order to upgrade our technologies and expand our operations. The additional assets are one reason we have been able to grow and improve our profit margins. I don’t see that this is a problem.

Anna: The problem is that we must maintain a 15% rate of return on invested assets.

1. Determine the profit margins for the Norsk Division for 2014–2016.
2. Compute the investment turnover for the Norsk Division for 2014–2016. Round to two decimal places.
3. Compute the rate of return on investment for the Norsk Division for 2014–2016.
4. Evaluate the division’s performance over the 2014–2016 time period. Why was Anna concerned about the performance?