Compute and interpret the expanded ROI equation (Learning Objective 3)

Rogers, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: Professional and Residential. Assume the following divisional information was available for the past year (in thousands of dollars):

	Sales	Operating Income	Total Assets
Residential	$ 850,000	$ 68,000	$200,000
Professional	$1,095,000	$153,300	$365,000

Assume that management has a 25% target rate of return for each division.

Requirements

Round all of your answers to four decimal places.

1. Calculate each divisions ROI.

2. Calculate each divisions sales margin. Interpret your results.

3. Calculate each divisions capital turnover. Interpret your results.

4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?

5. Calculate each divisions residual income (RI). Interpret your results.