Q4TI Padgett Company has compiled the... [FREE SOLUTION]

91影视

Chapter 24: Q4TI (page 1346)

Padgett Company has compiled the following data:
Net sales revenue $1,000,000
Operating income 60,000
Average total assets 400,000
Management鈥檚 target rate of return 12%
Compute the following amounts for Padgett:
Profit margin ratio
Asset turnover ratio
Return on investment
Residual income

Short Answer

Expert verified

The profit margin ratio of the company is6%.

The asset turnover ratio is2.5 times.

Return on investment is15%.

Residual income of the company is$12,000.

Step by step solution

Meaning of Operating income

Operating income refers to the income generated by a business concern from its core operations. It is computed by taking the difference betweensales revenue and associated costs such as variable and fixed.

Computation of profit margin ratio

$\begin{array}{rcl} P r o f i t m a r g i n r a t i o & = & \frac{O p e r a t i n g i n c o m e}{N e t s a l e s} 脳 100 \\ = & \frac{$ 60, 000}{$ 1, 000, 000} 脳 100 \\ = & 6 % \end{array}$

Computation of asset turnover ratio

$\begin{array}{rcl} A s s e t t u r n o v e r r a t i o & = & \frac{N e t s a l e s}{A v e r a g e t o t a l a s s e t s} \\ = & \frac{$ 1, 000, 000}{$ 400, 000} \\ = & 2.5 t i m e s \end{array}$

Computation of return on investment

$\begin{array}{rcl} R e t u r n o n i n v e s t m e n t & = & \frac{O p e r a t i n g i n c o m e}{A v e r a g e t o t a l a s s e t s} 脳 100 \\ = & \frac{$ 60, 000}{$ 400, 000} 脳 100 \\ = & 15 % \end{array}$

Computation of residual income

$\begin{array}{rcl} R e s i d u a l i n c o m e & = & O p e r a t i n g i n c o m e - (T a r g e t r a t e o f r e t u r n 脳 A v e r a g e t o t a l a s s e t s) \\ = & $ 60, 000 - (12 % 脳 $ 400, 000) \\ = & $ 60, 000 - $ 48, 000 \\ = & $ 12, 000 \end{array}$

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

91影视

Padgett Company has compiled the following data:
Net sales revenue $1,000,000
Operating income 60,000
Average total assets 400,000
Management鈥檚 target rate of return 12%
Compute the following amounts for Padgett:
Profit margin ratio
Asset turnover ratio
Return on investment
Residual income

Short Answer

Step by step solution

Meaning of Operating income

Computation of profit margin ratio

Computation of asset turnover ratio

Computation of return on investment

Computation of residual income

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Organizational Communication

Actuarial Science in Business

Strategic Direction

Nature of Business

Family Business

Study anywhere. Anytime. Across all devices.

91影视

Padgett Company has compiled the following data:Net sales revenue $1,000,000Operating income 60,000 Average total assets 400,000Management鈥檚 target rate of return 12%Compute the following amounts for Padgett:Profit margin ratioAsset turnover ratio Return on investmentResidual income

Short Answer

Step by step solution

Meaning of Operating income

Computation of profit margin ratio

Computation of asset turnover ratio

Computation of return on investment

Computation of residual income

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Organizational Communication

Actuarial Science in Business

Strategic Direction

Nature of Business

Family Business

Study anywhere. Anytime. Across all devices.

Padgett Company has compiled the following data:
Net sales revenue $1,000,000
Operating income 60,000
Average total assets 400,000
Management鈥檚 target rate of return 12%
Compute the following amounts for Padgett:
Profit margin ratio
Asset turnover ratio
Return on investment
Residual income