Return on investment
Hugo Corporation’s balance sheet indicates that the company has $350,000 invested in operating assets. During 2008, Hugo earned operating income of $56,000 on $700,000 of sales.
a. Compute Hugo’s margin for 2008.
b. Compute Hugo’s turnover for 2008.
c. Compute Hugo’s return on investment for 2008.
d. Recompute Hugo’s ROI under each of the following independent assumptions.
(1) Sales increase from $700,000 to $840,000, thereby resulting in an increase in operating income from $56,000 to $67,200.
(2) Sales remain constant, but Hugo reduces expenses resulting in an increase in operating income from $56,000 to $58,000.
(3) Hugo is able to reduce its invested capital from $350,000 to $240,000 without affecting operating income.