The Laser Division of FOX Technologies Inc. has been experiencing revenue and profit growth during the years 2010–2012. The divisional income statements are provided below.

Assume that there are no charges from service departments. The vice president of the division, Stacy Harper, is proud of her division’s performance over the last three years. The president of FOX Technologies Inc., Hal Nelson, is discussing the division’s performance with Stacy, as follows:
Stacy: As you can see, we’ve had a successful three years in the Laser Division.
Hal: I’m not too sure.
Stacy: What do you mean? Look at our results. Our income from operations has more than tripled, while our profit margins are improving.
Hal: I am looking at your results. However, your income statements fail to include one very important piece of information; namely, the invested assets. You have been investing a great deal of assets into the division. You had $2,000,000 in invested assets in 2010, $4,500,000 in 2011, and $10,000,000 in 2012.
Stacy: You are right. I’ve needed the assets in order to upgrade our technologies and expand our operations. The additional assets are one reason we have been able to grow and improve our profit margins. I don’t see that this is a problem.
Hal: The problem is that we want to maintain a 30% rate of return on invested assets.
1. Determine the profit margins for the Laser Division for 2010–2012.
2. Compute the investment turnover for the Laser Division for 2010–2012.
3. Compute the rate of return on investment for the Laser Division for 2010–2012.
4. Evaluate the division’s performance over the 2010–2012 time period. Why was Hal concerned about theperformance?

  • CreatedFebruary 04, 2014
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