APPLY THE CONCEPTS: Calculating margin and turnover Calculate the margin and the turnover for each division. If required, round margin to the nearest tenth of a percent (for example, 14.6%) and turnover to two decimal places (for example, 0.82). Division A % Division B Division C % % Margin Turnover The division showing the highest operating profitability is Division The division showing the highest operating efficiency is Division Feedback Check My Work For Margin, divide Operating income by Sales Revenue and express it as a percentage, rounded to one decimal place. For Turnover, divide Sales Revenue by Invested Assets and round to two decimal places (this is NOT a percentage). APPLY THE CONCEPTS: Using margin and turnover to calculate return on investment A second way to calculate return on investment (ROI) is Return on Investment = Margin x Turnover. Using the margins and turnovers you recorded above, calculate the return on investment for each division. If required, round the return on investment to the nearest hundredth of a percent (for example, 16.94%). Return on investment Feedback Division A % Division B % Division C % Check My Work Multiply the Margin, calculated above, times the Turnover, also calculated above. Round to two decimal places. APPLY THE CONCEPTS: Determining which ROI formula to use Mastery Problem: Return on Investment, margin, and turnover Return on Investment (ROI) The manager of an investment center should be evaluated based on revenues, costs, and investments. An evaluation based on net income ignores the amount of investment the investment center required. One way to measure operating profit in relation to investment is a calculation called the return on investment. One formula for calculating return on investment is: Operating income Invested Assets ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment. APPLY THE CONCEPTS: Calculating return on investment The divisional income statements for three divisions of the Silver Company are shown. Silver Company Divisional Income Statements For the Year Ending December 31, 20Y8 Division A Division B Division C Sales Revenue $2,352,000 $1,356,000 $906,200 Operating expenses (1,387,680) (1,017,000) (480,286) Operating income before service department charges $964,320 $339,000 $425,914 Service department charges (470,400) (40,680) (335,294) Operating income $493,920 $298,320 $90,620 Additional financial data from the three divisions of the Silver Company are shown. Division A Division B Division C Invested assets $1,120,000 $678,000 $460,000 Calculate the return on investment for each division. If required, round the ROI to the nearest hundredth of a percent (for example, 16.943% would be rounded to 16.94%). Return on investment Division A Division B Division C X % X % X %