Moto Corp allows its divisions to operate as autonomous units. The operating data for 2015 follow:

Plows Tractors Combines
Revenues $2,250,000 $500,000 $4,800,000
Accounts receivable 800,000 152,500 1,435,000
Operating assets 1,000,000 400,000 1,750,000
Net operating income 220,000 60,000 480,000
Taxable income 165,000 90,000 385,000

Required:
a. Compute the investment turnover for each division.
b. Compute the return on sales for each division.
c. Compute the return on investment for each division.
d. Which division manager is doing best? Why?
e. What other factors should be included when evaluating the managers?

For parts (b) and (c) income is defined as operating income.

Answer:
a. Investment turnover:
Plows = $2,250,000/$1,000,000 = 2.25
Tractors = $500,000/$400,000 = 1.25
Combines = $4,800,000/$1,750,000 = 2.74

b. Return on Sales:
Plows = $220,000/$2,250,000 = 0.10
Tractors = $60,000/$500,000 = 0.12
Combines = $480,000/$4,800,000 = 0.10

c. ROI:
Plows = 2.25 × 0.10 = 0.225
Tractors = 1.25 × 0.12 = 0.150
Combines = 2.74 × 0.10 = 0.274

d. Combines' manager had the best performance because he had the highest investment turnover, which offset his second-best return on sales.

e. Residual income should be considered and noncontrollable factors such as the age of the assets.