ROI and Economic Profit Calculations
Consider the following data (in thousands):
Division
Tinker Evers Chance
Average invested capital $2000 $600 $1800
Revenue 3600 1200 9000
Income 180 126 360
1) For each division, compute the return on sales, the capital turnover, and the return on investment (ROI)
2) Which division is the best performer if evaluation is based on ROI? Explain.
3) Suppose each division is assessed a cost of capital of 10% on invested capital. Compute the economic profit for each division. Which division is the best performer based on economic profit? Explain.