Arjun Singh, head of the Sporting Goods Division of Reliable Products, has just completed a miserable nine months. “If it could have gone wrong, it did. Sales are down, income is down, inventories are bloated, and quite frankly, I’m beginning to worry about my job,” Singh moaned. Reliable Products’ division managers are evaluated on the basis of ROI. Selected figures for the past nine months follow.

In an effort to make something out of nothing and to salvage the current year’s performance, Singh was contemplating implementation of some or all of the following four strategies:
a. Write off and discard $60,000 of obsolete inventory. The company will take a loss on the disposal.
b. Accelerate the collection of $80,000 of overdue customer accounts receivable.
c. Stop advertising through year-end and drastically reduce outlays for repairs and maintenance. 

These actions are expected to save the division $150,000 of expenses and will conserve cash resources.
d. Acquire two competitors that are expected to have the following financial characteristics:

Required:
1. Briefly define sales margin, capital turnover, and return on investment and then compute these amounts for Reliable’s Sporting Goods Division over the past nine months.
2. Evaluate each of the first two strategies listed, with respect to its effect on Reliable’s last nine months’ performance, and make a recommendation to Singh regarding which, if any, to adopt.
3. Are there possible long-term problems associated with strategy c? Briefly explain.
4. Determine the ROI of the investment in Anderson Manufacturing, and do the same for the investment in Palm Beach Enterprises. Should Singh reject both acquisitions, acquire one company, or acquire both companies? Assume that sufficient capital is available to fund investments in both organizations.

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Sales Operating income Invested capital $4,800,000 360,000 6,000,000