P12–5 Return on investment (ROI); comparison of company performance Time allowed: 30 minutes Comparative data on three companies in the same industry are given below:

Requried 1 What advantages can you see in breaking down the ROI computation into two separate elements, margin and turnover?
2 Fill in the missing information above, and comment on the relative performance of the three companies in as much detail as the data permit.
Make specific recommendations on steps to be taken to improve the return on investment, where needed. (Adapted from National Association of Accountants, Research Report No. 35, p. 34)

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Company A B C Sales Net operating profit 600,000 84,000 500,000 70,000 ? ? Average operating assets 300,000 ? 1,000,000 Margin ? ? 3.5% Turnover ? ? 2 ROI ? 7% ?