Sports Company makes snowboards, downhill skis, cross-country skis, skateboards, surfboards, and in-line skates. The company has found it beneficial to split operations into two divisions based on the climate required for the sport: Snow Sports and Non-Snow Sports. The following divisional information is available for the past year:

Sales Operating Income Total Assests Current Liabilities
Snow Sports $57,00,000 1010,500 4,300,000 450,000
Non- Snow Sport 8500000 1332500 6500,000 750,000

Required:
a. Calculate each division's ROI.
b. Top management has extra funds to invest. Which division will most likely receive those funds? Why?
c. Can you explain why one division's ROI is higher? How could management gain more insight?

c. One division's ROI on investment because it earned more returns from the division when compared with its investment. This shows that SnowSports is more efficient than the other division in the use of resources.

Management can gain more insight by computing the Assets Turnover ratio and the operating leverage.

Explanation:

a) Data and Calculations:

Sales Operating Total Assets Current Liabilities

Income

Snow Sports $5,700,000 1,010,500 4,300,000 450,000

Non- SnowSport 8,500,000 1,332,500 6,500,000 750,000

ROI (Return on Investments) = Operating income/Total assets * 100

Snow Sports = $1,010,500/$4,300,000 * 100 = 23.5%

Non-SnowSport = $1,332,500/$6,500,000 * 100 = 20.5%