acct 3

• ROI= Net operating Income / Avg operating assets
• Margin = Net operating Income / Sales
• Turnover= Sales / Avg operating assets
• ROI = Margin x Turnover

= Net Operating Income - ( Avg operating assets x Min. required rate of return)

• ROI measure net operating income earned relative to the investment in avg operating assets
• Residual income measure net operating income earned less the minimum required return on avergage operating assets

a segment whose manager has control over costs but not over revenues or investment funds

a segment whose manager has control over both costs and revevenues, but no control over investment fun

A segment whose manager has control over costs, revenues, an investments in operating assets

arise because of th existence of a particular segment and would disappear over time if the segment itself disappeared

arise because of the overall operation of the copany and would not disappear if any particular segment were eliminated

include cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes. Examples of assets that are not included in operating assets (i.e., examples of nonoperating assets) include land held for future use, an investment in another company, or a building rented to someone else

a cost that differs between alternatives.

determines whether or not the project is an acceptable investment. If NPV is POSITIVE- then the project is acceptable because it promises a return greater than the required rate of return. ZERO - then the project is acceptable because it promises a return equalto the required rate of return. NEGATIVE- then the project is not acceptable because it promises a return less than the required rate of return.

selecting from among several competing courses of action

Net present value of project / Investment required

• the length of time that i takes for a project to recover its initial cost out of the cash receipts that it generates.
• = Investment required / Net annual cash flow

• does not focus on cash flows rather it focuses on accountng net operating income.
• = Annual incremental net operating income / Initial investment
• * simple rate of return is not recommended because it ignores the time vaue of money andthe simple rate can fluctuate from year to year

(Net income - Preferred Dividends) / Avg. number of common shares outstanding

Dividends Per Share / Earnings per share

Market Price Per Share / Earnings per share

Dividends per share / Market price per share

[ Net income / (Interest Expense x (1 - Tax rate) ) ] / Avg. total assets

( Net income - Preferred Dividends) / Avg. Stockholders equity

the excess of current assets over current liabilities. Current Assets - Current Liabilities

• measures a company's short term debt paying ability.
• Current Assets / Current Liabilities

• measures a company's ability to meet obligations withiout having to liquidate inventory. Quick assets include cash, marketable seurities, acounts receivable, current notes receivable
• Quick Assets / Current Liabilities

• indicates the relative proportionsof debt to equity on a company's balance sheet
• Total Liabilities / Stockholders Equity

sales - variable expense = contribution margin therefore total contribution margin / sales

Gross Margin / Sales

• measures on average hw many days it taks to collect an account receivable
• 365 days / Accounts Receivable Turnover

• measures how many times a companys inventory has been sold and replaced during the year
• COGS / Average inventory

• measures how many days, on average it takes to sell the entire inventory
• 365 days / Inventory Turnover