Asset Effectiveness & Efficiency

Question 1

ROI

Answer 1

income/investment capital
or
profit margin/investment turnover

income = (revenue-cogs-gs&a)

Question 2

Profit margin

Answer 2

income/sales

Question 3

investment turnover

Answer 3

sales/invested capital

Question 4

ROA

Answer 4

income/average total assets

Question 5

Adjustments to the ROI denominator

Answer 5

investment capital raise the bar on asset, project or company performance. The higher the denominator used in the ROI computation, the lower the return

Question 6

ROE

Answer 6

Net income/Total equity

net profit margin=ni/sales

asset turnover = sales/avg total assets

financial leverage = avg total assets/ equity

Question 7

operating income margin

Answer 7

EBIT/Sales

Question 8

duPont ROE

Answer 8

Net Profit Margin X Asset Turnover X Financial Leverage

Net Profit Margin X Asset Turnover = ROA

Question 9

Extended DuPont ROE

Answer 9

NI/Sales X asset turnover X financial leverage

Question 10

Residual Income

Answer 10

Net Income - Required return

required return = net book value (equity) X hurdle rate

Question 11

profit margin

Answer 11

ROI/asset turnover

Question 12

times-interest-earned ratio

Answer 12

EBIT/ interest expense

Question 13

Economic Value-added

Answer 13

residual income-cost of capital

Question 14

ROE

Answer 14

net income/total equity

net profit margin x asset turnover x financial leverage

Question 15

ROA

Answer 15

net profit margin x asset turnover