The following selected data are for three companies:

a. Determine the operating margin, turnover of operating assets, and rate of return on operating assets for each company.

b. In the subsequent year, the following changes took place (no other changes occurred):
Company 1 bought some new machinery at a cost of \(\$ 156,000\). Net operating income increased by \(\$ 12,480\) as a result of an increase in sales of \(\$ 249,600\).
Company 2 sold some equipment it was using that was relatively unproductive. The book value of the equipment sold was \(\$ 624,000\). As a result of the sale of the equipment, sales declined by \(\$ 312,000\), and operating income declined by \(\$ 6,240\).
Company 3 purchased some new retail outlets at a cost of \(\$ 6,240,000\). As a result, sales increased by \(\$ 9,360,000\), and operating income increased by \(\$ 499,200\).
1. Which company has the largest absolute change in-

a. Operating margin ratio?

b. Turnover of operating assets?

c. Rate of return on operating assets?
2. Which one realized the largest dollar change in operating income? Explain this change in relation to the changes in the rate of return on operating assets.

Transcribed Image Text:

Company 1.. Company 2. Company 3. Operating Assets $ 1,404,000 8,424,000 37,440,000 Net Operating Income $ 187,200 608,400 4,914,000 Net Sales $ 2,059,200 18,720,000 35,100,000