Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc Balance Sheet Ending Balance Beginning Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A Land (undeveloped) Total assets...
Note : Investment in Buisson, S.A. and undeveloped land do not help the company in carrying out its main operations and hence the same are not taken in the operating assets.
1. Average operating assets = [ Beginning operating assets + Ending operating assets ] / 2 = [ $1,830,000 + $1,870,000 ] / 2 = $1,850,000
2. Margin = [ Net operating income / Sales ] * 100 = [ $769,600 / $4,810,000 ] * 100 = 16%
Turnover = Sales / Average operating assets = $4,810,000 / $1,850,000 = 2.6
Return on Investment ( ROI ) = [ Net operating income / Average operating assets ] * 100 = [ $769,600 / $1,850,000 ] * 100 = 41.6%
3. Residual income = Net operating income - [ Average operating assets * Minimum required rate of return ] = $769,600 - [ $1,850,000 * 15% ] = $492,100