Extreme Sports Company makes snowboards, downhill skis, cross-country skis,skateboards, surfboards, and inline 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:

Snow Sports

Net Sales Revenue 5,700,000

Operating Income 969,000

Average Total Assets  4,700,000

Basic ROI  20.6%

Profit Margin Ratio  17%

Non-snow Sports

Net Sales Revenue  8,600,000

Operating Income  1,462,000

Average Total Assets  6,700,000

Basic ROI  21.8%

Profit Margin ROI  17%

Extreme's management has specified a 14% target rate of return.

Requirements

1. Compute each division's asset turnover ratio (round to two decimal places). Interpret your results.

Begin by selecting the formula to calculate the asset turnover, and then enter the amounts to calculate each division's asset turnover.

2. Use your answers to Requirement 1, along with the profit margin ratio, to recalculate ROI using the expanded formula. Do the answers agree with the basic ROI?

Answer rating: 100% (QA)

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