Question:
Return on Investment and Residual Income
The financial results for the past two years for Ornamental Iron, a division of Iron Horse Company, follow.
| Iron Horse Company |
| Ornamental Iron Division |
| Balance Sheet |
| December 31 |
| This Year |
Last Year |
| Assets |
| Cash |
$ 5,000 |
$ 3,000 |
| Accounts receivable |
10,000 |
8,000 |
| Inventory |
30,000 |
32,000 |
| Other current assets |
600 |
600 |
| Plant assets |
128,300 |
120,300 |
| Total assets |
$173,900 |
$163,900 |
| Liabilities and Stockholders' Equity |
| Current liabilities |
$ 13,900 |
$ 10,000 |
| Long-term liabilities |
90,000 |
93,900 |
| Stockholders' equity |
70,000 |
60,000 |
| Total liabilities and stockholders' equity |
$173,900 |
$163,900 |
| Iron Horse Company |
| Ornamental Iron Division |
| Income Statement |
| For the Years Ended December 31 |
| This Year |
Last Year |
| Sales |
$ 180,000 |
$ 160,000 |
| Cost of goods sold |
(100,000) |
(90,000) |
| Selling and administrative expenses |
(27,500) |
(26,500) |
| Operating income |
$ 52,500 |
$ 43,500 |
| Income taxes |
17,850 |
14,790 |
| After-tax operating income |
$ 34,650 |
$ 28,710 |
1. Compute the division's profit margin, asset turnover, and return on investment for this year and last year. Beginning total assets for last year were $157,900. Round to two decimal places.