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ROI = profit margin * ATR (Asset Turnover Rate)

ATR = Sales/Total Assets

Total Assets = Current Assets + Fixed Asset

Current Assets = Inventory + Accounts Receivable + Cash

If you increase the ATR, then ATR goes up

If you reduce your total assets without changing sales or increasing sales, then ATR goes up.

Examples:

Reduce your inventory and your ATR will go up and ROI will go up.

If you do more with less your ATR will go up

Profit Margin = (Sales - Cost of Sales)/Sale Or Operating Income/Sales

1. Take your company's total Annual Sales rev. ( - ) Your cost (DM, DL, Overhead.

2. Take that number / by your total annual sales rev.

How do you widen margins? : We cut costs

Where do most of your costs come from? : Direct materials purchases

Why do you want to widen margins? : Increase the ROI

What is ATR? : Doing more with less (reducing inventory, getting customers pay sooner, outsourcing)

When ROI goes up? : Company stock goes up

What the formula for operating income? : Sales - cost of sales

What are most company's doing to increase their ATR? : It helps them to do more with less (Better, Faster and Cheaper)

Can profit Margins have a negative value and why?

Yes, profit margins represent the % of revenue that exceeds costs.

It can be negative if costs exceed revenue

Asset turnover rate CAN'T have a negative value. Why?

To calculate = net sales / ATA

Shows how efficiently assets are used to generate sales

both sales and assets are non - negative

Can a ROI be negative?

Yes

If the return (or profit) from an investment is less than the initial investment.

If the company profit margins one negative and their asset turnover rate is positive

That is True

The result will ALWAYS be negative

Negative profit margins a loss

Then you multiply is by a positive asset turnover rate will give a negative ROI.

Negative profit margin always indicates that the company is making a loss

True

That mean they e spending more than they make

A company with higher ATR necessarily DOESNT has a positive ROI

A positive ATR doesn't guarantee a positive ROI

The profit margins also play a role

If the profit margins are negative, even a high ATR could result in a negative ROI

If both profit margins and ATR are positive, the ROI will also be positive

Multiplan positives numbers will yield a positive number

The ATR is a measure of how efficient a company uses its assets to generate sales

it indicates the sales generated per unit

A company CANNOT have positive ROI even with a negative profit margin if its ATR is high enough.

A negative profit margins mean the company is incurring a loss on each sale

No matter how high the ATR, the ROI still be negative

A company's ROI CAN be improved by increasing its profit margins, increasing its ATR, or both

Both a higher profit margin and a higher ATR can contribute to a higher ROI

Profit margins represent the % of rev. that exceeds costs, so it can indeed be negative if costs are higher than revenue

ATR is a ratio that represents the efficiency of a company use of its assets in general sales revenue

Sense both net sales and ATR are non-negative figures, the ATR CANNOT be negative

ROI can be negative if the gains from investment are less than the cost of investment

Improvements in purchasing performance can have a significant impact on farm's ROI because purchasing / SCM can directly impact what?

DM cost + Inventory Cost

Why: you reduce your DM purchase costs 5% then that means you also helped reduce the dollar amount of inventory they have on hand

Paying less for the materials

Reducing DM costs help both sides of ROI calculations