Chow Company has a number of investment centers to track on a day-to-day basis. The following represent key figures related to one of Chow's investment centers for May 20xx: $$\begin{array} { | l | l | }
\hline \text { Opereting income } & \$ 6,000,000 \
\hline \text { Sales } & 15,000,000 \
\hline \text { Asset turnover } & 55 \% \
\hline &
\end{array}$$ What is the investment center's ROI for May 20xx (rounded to two decimal places)?

Question

Chow Company has a number of investment centers to track on a day-to-day basis. The following represent key figures related to one of Chow's investment centers for May 20xx: $$\begin{array} { | l | l | } 
\hline \text { Opereting income } & \$ 6,000,000 \
\hline \text { Sales } & 15,000,000 \
\hline \text { Asset turnover } & 55 \% \
\hline &
\end{array}$$ What is the investment center's ROI for May 20xx (rounded to two decimal places)?

Quizplus · Accepted Answer

The ROI (Return on Investment) is calculated as Operating Income divided by Total Assets. Given the Asset Turnover ratio (Sales/Total Assets) of 55%, we can find Total Assets by rearranging the formula: Total Assets = Sales / Asset Turnover = $15,000,000 / 0.55 = $27,272,727.27. Then, ROI = Operating Income / Total Assets = $6,000,000 / $27,272,727.27 = 0.22, or 22%.

Chow Company Has a Number of Investment Centers to Track