Largo Company recorded for the past year sales of $510,000 and average operating assets of $255,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 14%

Answer: 7%

Explanation:

Turnover = Sales

Average operating assets is $255,000 = 2.0

Turnover = $510,000

ROI = Margin x Turnover

14% = Margin x 2.0

Margin = 7%

The margin needed is 7 %

Explanation:

The return in investment evaluates the gains or losses from an investment over a period of time. The return on investment can be calculated with the expression below;

Return on investment (ROI) = Net operating income / Average operating asset

Given ROI = 14 %

Average operating asset = $255,000

Net operating income = ROI x Average operating asset

= 14% x $255,000

= $ 35700

The net operating income can be used to obtain the margin as follows;

Margin = Net Operating Income / Sales x 100

Margin = $ 35700 / $510,000 x 100

= 0.07 x 100

= 7 %

Therefore the margin needed by Largo Company to earn is 7 %