Zap is a retailer that specialises in electrical goods. It is a division of a large retail company, data relate to the most recent year of operations:

Profit………………………………………….$6,000,000

Saks revenue………………………………….75,000,000

Average invested capital………………………30,000,000

Required:

1. Calculate Zap’s return on sales, investment turnover arid return on investment.

2. Use the two component ratios to demonstrate two ways in which the manager of Zap could ROI, increasing it to 25 per cent.

3. Assume that the retail company has a minimum required rate of return of ii per cent, and calculate, the residual income for Zap.



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