Return on investment is often expressed as the product of two components: capital turnover and margin on sales. You are considering investing in one of three companies, all in the same industry, and are given the following information:

1. Why would you desire the breakdown of return on investment into margin on sales and turnover on capital?
2. Compute the margin on sales, turnover on capital, and return on investment for the three companies, and comment on the relative performance of the companies as thoroughly as the data permit.

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COMPANY X Y Z Sales $9,000,000 $2,500,000 $37,500,000 Income 1,350,000 375,000 375,000 Capital 4,500,000 12,500,000 12,500,000