Question

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

Investment Center Sales Income Average Invested Assets

Electronics 45,000,000 3,420,000 18,000,000
Sporting goods 25,200,000 2,520,000 14,000,000

Required:
Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales?

Answer 1

Investment Center Sales Income Average

Invested Assets

Electronics 45,000,000 3,420,000 18,000,000

Sporting goods 25,200,000 2,520,000 14,000,000

Profit Margin

Profit Margin= Net Income / Sales

- Electronics = 3,420,000 / 45,000,000 = 7.60%

- Sporting Goods = 2,520,000 / 25,200,000 = 10.00%

From this, sporting goods generate the most income per dollar of sale.

Investment Turnover

Investment Turnover = Sale / Average Assets

- Electronics = 45,000,000 / 18,000,000 = 2.5

- Sporting Goods = 25,200,000 / 14,000,000 = 1.8

From this, Electronics is most efficient in driving sale per dollar of investment.