Discussion Forum Unit 7 PDF

Preview

Summary

Download Discussion Forum Unit 7 PDF

Description

Discussion Forum Unit 7 Describe operating profit margin and asset turnover, and explain how each of these ratios can be used to help division managers improve ROI. An operating profit margin can be defined as a net profit percentage of sales revenue. It shows how much operating profit has been generated out of sale. It is an indicator of profitability and it is often used to compare profitability of companies and industries of different sizes (Heisinger & Hoyle, 2012). It is calculated as follows: operating profit margin = Operating Income ÷ Sales. Since the operating profit margin is used to compare profitability of companies, it means that it is also helpful in determining the ROI of an investment by using the profitability to identify the efficiency of an investment or the efficiencies of several different investments. How effectively resources and assets have been utilized and how much revenue and expenses contributed toward resources for core operation. Operating margin ratio also helps division managers to know how to calculate working capital, cost control, and pricing strategy so that management can increase its ROI. On the other hand, an asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue to the company. This financial ratio provides information about how much “revenue in each dollar invested in average operating assets produces (Heisinger & Hoyle, 2012, p. 294). This ratio can be calculated as follows: Assets Turnover = Sales Revenue ÷ Average Capital Assets. One way division managers can improve return on investment with this ratio is by increasing sales revenue and decreasing their expenses. A company can increase its sales revenue by maintaining its current sales price but increasing their sales volume (OpenStax, 2020). Reference Heisinger, K., & Hoyle, J. B. (2012). Chapter 11: How do managers evaluate performance in decentralized organizations? In Accounting for Managers, pp. 842-937. Creative Commons byNC-SA 3.0. Retrieved from https://my.uopeople.edu/pluginfile.php/843989/mod_page/content/16/accounting-formanagers%20CH%208-13.pdf OpenStax. (2020). Chapter 12: Balanced Scorecard and Other Performance Measures. In Principles of Accounting, Volume 2: Managerial Accounting. Creative Commons Attribution 4.0 International License. Retrieved from https://openstax.org/books/principles-managerialaccounting/pages/12-3-evaluate-an-operating-segment-or-a-project-using-return-on-investmentresidual-income-and-economic-value-added...