Toro, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: Professional and Residential. Assume that the following divisional information was available for the past year (in thousands of dollars):
_______________Sales Operating Income Total Assets
Residential.......$420,000..........$ 58,800..............$210,000
Professional......$608,000.........$152,000.............$380,000
Management has a 25% target rate of return for each division. (All data in this exercise is hypothetical.)
Requirements
1. Calculate each division's ROI. Round all of your answers to four decimal places.
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. What can you conclude?
5. Calculate each division's residual income (RI). Interpret your results.