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Sales margin, capital turnover, ROI, EVA

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Engel's: compute ratios for each division: sales margin, capital turnover, ROI, residual income, EVA

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Solution Summary

The solution explains how to calculate sales margin, capital turnover, ROI and EVA for each division

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Problem 1

Asian Division
a. Sales Margin = Operating Income/Sales = 92,000/460,000 = 20%
b. Capital turnover = Sales/Average operating assets = 460,000/368,000=1.25
c. ROI = Margin X Turnover = 20%X1.25 = 25%
d. Residual income = Operating Income - Imputed interest X Average operating assets
= 92,000-24% X 368,000 = $3,680
e. EVA = Operating Income X (1-tax rate) - WACC X Average operating assets
= 92,000 X (1-0.18) - 14% X 368,000 = $23,920

European Division
a. Sales Margin = Operating Income/Sales = 90,000/900,000 = 10%
b. Capital Turnover = Sales/Average operating assets = 900,000/750,000=1.2
c. ROI = Margin X Turnover = 10%X1.2 = 12%
d. Residual ...

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