Return on investment; comparisons of three companies. (CMA, adapted) Return on investment is often expressed as follows:
Question:
Return on investment; comparisons of three companies. (CMA, adapted) Return on investment is often expressed as follows:
-
Income _ Revenues Income — -x —-
Investment Investment Revenues Required 1. What advantages are there in the breakdown ofthe computation into two separate components?
2. Fill in the following blanks:
Revenue Income Investment Income as a percentage ofrevenue Investment turnover Return on investment Companies in Same Industry ABC $1,200,000 $600,000 ?
$ 120,000 $ 60,000 ?
$ 600,000 ? $6,000,000 ? ? 0.5%
? ? 2 ? 1% ?
After filling in the blanks, comment on the relative performance of these companies as thoroughly as the data permit.
Excel Application For students who wish to practise their spreadsheet skills, the following is a step-by-step approach to creating an Excel spreadsheet to work this problem.
Step-by-Step 1. Open a new spreadsheet. At the top, create a table in the same format as provided for this problem, with columns for companies A, B, and C and rows for “Revenues, Income, Investment, Income as a Percentage of Revenue, Investment Turnover, and ROI.” Enter the data provided in the table (leave cells blank when a “?” appears in the table). (Program your spreadsheet to perform all necessary calculations. Do not “hard-code” any amounts, such as ROI for Company A, requiring addition, subtraction, multiplication, or division operations.)
2. Enter calculations for each of the missing items. For example, to calculate revenues for Company C, enter a calculation that multiplies Company C’s investment by Company C’s investment turnover.
3. Verify the accuracy of your spreadsheet: Change investment for Company A from $600,000 to $480,000. Ifyou programmed your spreadsheet correctly, ROI for Company A should change to 25%.
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 9780131971905
4th Canadian Edition
Authors: Charles T. Horngren, George Foster, Srikant M. Datar, Howard D. Teall