Reference no: EM131347613
Accountants often express ROI as the product of two components - capital turnover and return on sales. You are considering investing in one of three companies, all in the same industry, and are given the following information:
Andrew Bill Connor
Sales $850,000 $1,500,000 $29,000,000
Income $765,000 $180,000 $180,000
Capital $3,200,000 $12,000,000 $12,000,000
1. Why would you desire the breakdown of return on investment into return on sales and turnover on capital?
2. Compute the return on sales, turnover on capital, and ROI for the three companies, and comment on the relative performance of the companies as thoroughly as the data permit.
3. Notice that Bill and Connor have the same income and capital but vastly different levels of sales. Discuss the types of strategies that Bill and Connor might be employing.
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