Question

Reed Company’s sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the company’s turnover was 3, then its net income for the year must have been

$2,000
$6,000
$12,000
$18,000
Please show me the equation.

Answer 1

Given:
Sales Revenue = 150,000
ROI = 12%
turnover = 3

ROI = Margin * Turnover Margin
12% = Margin * 3
12%/3 = Margin
4% = Margin

Margin = Net Operating Income / Sales
4% = Net Operating Income / 150,000
4% * 150,000 = Net Operating Income
6,000 = Net Operating Income