Ch 10.1

margin

All other things the same, _________ is ordinarily improved by increasing selling prices, reducing operating expenses, or increases unit sales.

leverage

Because of operating _________, a given percentage increase in unit sales usually leads to an even larger percentage increase in net operating income.

operating assets

Examples not included in _________ are land held for future use, an investment in another company, or a building rented to someone else.

turnover

Excessive funds tied up in operating assets depress _________ and lower ROI.

average operating assets

Most companies use the net book value (i.e. acquisition cost less accumulated depreciation) of depreciable assets to calculate _________.

higher

The _________ a business segment's ROI, the greater the profit earned per dollar invested in the segment's operating assets.

operating asset

The _________ base used in the ROI formula is typically computed as the average of the operating assets between the beginning and end of the year.

return on investment

_________ = margin * turnover

return on investment

_________ = net operating income / average operating assets

margin

_________ = net operating income / sales

turnover

_________ = sales / average operating assets

operating assets

_________ include cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.

return on investment

_________ is defined as net operating income divided by average operating assets.

net operating income

_________ is income before interest and taxes and is sometimes referred to as EBIT (earnings before interest and taxes).

net operating income

_________, rather than net income, is used in the ROI formula. This is used because the base (denominator) consists of operating assets.