Question

Largo Company recorded for the past year sales of $510,000 and average operating assets of $255,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 14%

Answer 1

Answer: 7%

Explanation:

Turnover = Sales

Average operating assets is $255,000 = 2.0

Turnover =$510,000

ROI = Margin x Turnover

14%= Margin x 2.0

Margin = 7%

Answer 2

Answer:

The margin needed is 7 %

Explanation:

The return in investment evaluates the gains or losses from an investment over a period of time. The return on investment can be calculated with the expression below;

Return on investment (ROI) = Net operating income /Average operating asset

Given ROI = 14 %

Average operating asset =  $255,000

Net operating income = ROI x Average operating asset

                                    =   14% x $255,000

                                    =    $ 35700

The net operating income can be used to obtain the margin as follows;

Margin = Net Operating Income / Sales  x 100

Margin = $ 35700 /$510,000 x 100

            = 0.07 x 100

           = 7 %

Therefore the margin needed by Largo Company to earn  is 7 %