Example: Jesper, Inc. provided the following data on its East and West Divisions for last year: East Division West Division $340,000 $1,670,000 Sales Expenses 245,000 1,450,000 Assets, January 1 900,000 2,500,000 Assets, December 31 940,000 2,400,000 Calculate the missing values in the following table: East Division West Division Operating income Average operating assets ROI can be calculated in two different ways. One is to divide operating income by average operating assets. The second is to calculate margin and turnover and then multiply margin times turnover. For the East Division: Margin = $95,000/$340,000 0.2794 Turnover = $340,000/$920,000 = 0.3696 Margin can be thought of as a percent - that is, margin is the percent return (operating income) on sales. Turnover is just a number, not a percent. It can bethought of as the number of times assets turnover during a year. ROI for the East Division = $95,000/$920,000 = 0.1033 or 10.33% or, using margin x turnover: ROI for the East Division = 0.2794 x 0.3696 = 0.1033 or 10.33% The East Division is earning just over ten percent on its asset or investment base. Calculate the following amounts for the West Division, rounded to four significant digits: Margin Turnover ROI or % Clearly the East Division is earning relatively more on its assets than the West Division. How could the West Division increase its ROI? Select all of the following: Suppose that the East Division increased revenue to $350,000 and nothing else changed. What impact would that have on margin , turnover , and ROI ? turnover Suppose that the East Division increased ending assets to $1,000,000 increase else changed. What impact would that have on margin and ROI ? decrease An advantage of ROI is that it no change Suppose the East Division manager could increase income to $135,000 (an increase of $40,000) by increasing average operating assets to $1,500,000. Is this a good idea