Splash Paints is a national paint manufacturer and retailer. Assume that management has specified a 19% target rate of return.

Data table The company is segmented into five divisions: Paint Stores (branded retail location), Consumer (paint sold through stores such as Sears, Home Depot, and Lowe's), Automotive (sales to auto manufacturers), International, and Administration. The following is selected hypothetical divisional information for the company's two largest divisions: Paint Stores and Consumer (in thousands of dollars). Sales Operating Income Total Assets Paint Stores... $ 3,950,000 $ 553,000 $ 1,975,000 Consumer.....$ 1,400,000 $ 231,000 $ 2,000,000 im Requirements Round all calculations to two decimal places. 1. Calculate each division's ROI. 2. Calculate each division's sales margin. Interpret your results. 3. Calculate each division's capital turnover. Interpret your results. 4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results. 5. Calculate each division's RI. Interpret your results and offer recommendations for any division with negative RI. 6. Total asset data were provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pros and cons of those choices. 7. Describe some of the factors that management considers when setting its minimum target rate of return. 8. Explain why some firms prefer to use RI rather than ROI for performance measurement. 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers. Print Done Splash Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) Assume that management has specified a 19% target rate of return. Read the requirements. Requirement 1. Calculate each division's ROI. First enter the formula, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the m ROI Paint Stores % Consumer % Requirement 2. Calculate each division's sales margin. Interpret your results. Enter the formula, then calculate the sales margin for each division. (Enter the sales margin as a percent round Sales margin Paint Stores % Consumer % Interpret your results. The Division is more profitable on each dollar of sales. Requirement 3. Calculate each division's capital turnover. Interpret your results. First enter the formula, then calculate the capital tumover for each division. (Round to two decimal places.) Capital turnover Paint Stores 11 11 times lash Paints is a national paint manufacturer and retailer. (Click the icon to view additional information.) ssume that management has specified a 19% target rate of return. ead the requirements. Requirement 3. Calculate each division's capital turnover. Interpret your results. First enter the formula, then calculate the capital turnover for each division. (Round to two decimal places.) Capital turnover Paint Stores = Consumer = The Division is more efficient in generating sales with its assets. *** Requ First times times anded ROI formula to confirm your results from Requirement 1. Interpret your results. formula, then calculate the ROI for each division. (Enter the ROI as a percent rounded to the neare Consumer ROI Pain Paint Stores X - % Consumer % X % The Consumer Division's profitability on each dollar of sales is than the Paint Stores Division's profitability. However, the F cause the Paint Stores Division's ROI to be the Consumer Division's ROI. Requirement 5. Calculate each division's RI. Interpret your results and offer recommendations for any division with negative RI. First enter the formula, then calculate the RI for each division. (Enter the amount in thousands. Use parentheses or a minus sign for RI than the Paint Stores The Consumer Division's profitability on each dollar of sales is cause the Paint Stores Division's ROI to be Requirement 5. Calculate each division's R First enter the formula, then calculate the RI fairly similar to Paint Stores higher than Consumer X lower than Interpret your results and offer recommenda... www.y .....negative RI. meeting management's target rate of return. The Requirement 6. Total asset data were provided in this problem. If you were to gather this informa choices. Most companies use the asset balance since the income used in the ROI calculation Management must also decide whether they wish to use the gross book value of assets or the net E The book value is often used because it is easily pulled from the balance sheet. However, F Requirement 7. Describe some of the factors that management considers when setting its minimum the Consumer Division's ROI. I offer recommendation. e amount in thousands. X X Requirement 5. Calculate each division's R. interpret your results and offer recommendations for any division with negative R. First enter the formula, then calculate the RI for each division (Enter the amount in thousands. Use parentheses or a minus sign for negative residual incomes) RI Paint Stores Consumer %). Interpret your results and offer recommendations for any division with negative Ri meeting management's target rate of retum. The should work on improving its Improving this may help the division achieve positive residual i Requirements. Total asset data were provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pros a choices Most companies use the asset balance since the income used in the ROI calculation is eamed over the year. Management must also decide whether they wish to use the gross book value of assets or the net book value of assets. The book value is often used because it is easily pulled from the balance sheet. However, ROI using that value will artificially rise over time due to Requirement 7. Describe some of the factors that management considers when setting its minimum target rate of retur Requirement 6. Total asset data were provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pa choices Most companies use the asset balance since the income used in the ROI calculation is earned over the year Management must also decide whether they wish to use the gross book value of assets or the net book value of assets The book value is often used because it is easily pulled from the balance sheet. However, ROI using that value will artificially rise over time due to Requirement 7. Describe some of the factors that management considers when setting its minimum target rate of return Requirement 8. Explain why some firma profer to use RI rather than ROI for performance measurement. Ri does a better job of Requirement B. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers Investment centers are responsible for Budget versus actual performance reports are insufficient because they do not measure ulation is eamed over the year. Management must also decide whether they wish to use the gross book value of assets or the net book value of assets. The book value is often used because it is easily pulled from the balance sheet. However, ROI using that value will artificially rise over time due to Requirement 7. Descri imum target rate of return. focusing on stockholders' and creditors rate of return getting management to make sure their division is profitable. goal congruence increasing the return on investment Requirement 8. Explai surement. RI does a better job of Requirement 9. Explain why budget versus actual performance reports are insufficient for evaluating the performance of investment centers. Investment centers are responsible for Budget versus actual performance reports are insufficient because they dow Management must also decide whether they wish to use the gross book value of assets or the net book value of assets. The book value is often used because it is easily pulled from the balance sheet. However, ROI using that value will artificially rise over time due t Requirement 7. Describe some of the factors that management considers when setting its minimum target rate of return. both generating profit and efficiently managing a divison's assets. Requirement 8. Explain why some firm efficiently managing a division's assets. RI does a better job of generating profit. Requirement 9. Explain why budget ve e of investment centers. Investment centers are responsible for Budget versus actual performance reports are uncially rise over time due to westment centers. actual performance reports are insufficient because they do not measure how efficiently the division uses its assets. how much income the division generated. re provided in this problem. If you were to gather this information from an annual report, how would you measure total assets? Describe your measurement choices and some of the pros and cons asset balance since the income used in the ROI calculation is earned over the year. ther they wish to use the gross book value of assets or the net book value of assets. ed because it is easily pulled from the balance sheet. However, ROI using that value will artificially rise over time due to the factors that management considers when setting its minimum target rate of return. acquisitions of property cash balance depreciation notes receivable e firms prefer to use R1 rather than ROI for performance measurement. prepaid expenses get versus actual performance reports are insufficient for evaluating the performance of investment centers. in for Budget versus actual performance reports are insufficient because they do not measure