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When operating profit ratio is 25% and capital turnover ratio is 2% what is the ROI?

When operating profit ratio is 25% and capital turnover ratio is 2% what is the ROI? Correct Answer 50%

Return on Investment: Return on investment is a ratio between net profit and cost of investment. A high ROI means the investment's gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.

Operating Profit Margin is a profitability or performance ratio that reflects the percentage of profit a company produces from its operations, prior to subtracting taxes and interest charges. It is calculated by dividing the operating profit by total revenue.

Capital Turnover Ratio: Turnover is the investment turnover ratio of the company. To calculate this number, take the firm’s sales figure and divide it by the company’s invested capital. This is a measure of how effective a company is at generating sales from the assets that have been invested in it.

Methods to find Return on Investment:

  1. ROI = Net Income / Cost of Investment
  2. ROI = Investment Gain / Investment Base
  3. ROI = Operating Profit Ratio*Capital Turnover Ratio

 

Return on Investment = Operating Profit Ratio*Capital Turnover Ratio = 25% × 2% = 50%

Therefore, When the operating profit ratio is 25% and the capital turnover ratio is 2%  the ROI is 50%.

Related Questions

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Outstanding expenses: 15% of creditors
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Rate of Income tax: 5%
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