ROI is calculated as net income divided by total assets. One way to solve this problem is to set up some actual numbers for a basic ROI. For example, sales = $500,000, expenses = $400,000, net income = $100,000 and total assets = $400,000. ROI = $100,000 ÷ $400,000, or .25. If we increase both the profit margin on sales and the assets of the company by the same percentage, say 10%, ROI will remain unchanged. Net income will increase by 10% to $110,000 and total assets will increase by 10% to $440,000. ROI will be $110,000 ÷ $440,000, which is unchanged at .25. ROI is calculated as net income divided by total assets. One way to solve this problem is to set up some actual numbers for a basic ROI. For example, sales = $500,000, expenses = $400,000, net income = $100,000 and total assets = $400,000. ROI = $100,000 ÷ $400,000, or .25. If we increase sales, expenses and total assets by the same amounts, for example by $50,000, the new amounts will be: sales = $550,000, expenses = $450,000, net income = $100,000 (unchanged because both sales and expenses increased by the same amount), and total assets = $450,000. ROI will become $100,000 ÷ $450,000, which is .22. This is a decrease because the denominator has increased while the numerator has stayed the same. So ROI would not be increased by this. ROI is calculated as net income divided by total assets. One way to solve this problem is to simply set up some actual numbers for a basic ROI. For example, sales = $500,000, expenses = $400,000, net income = $100,000 and total assets = $400,000. ROI = $100,000 ÷ $400,000, or .25. If we reduce expenses by $50,000 and increase total assets by $50,000, net income will increase by $50,000 to $150,000 because sales remained the same while expenses were reduced. Total assets will increase by $50,000 to $450,000. ROI will change to $150,000 ÷ $450,000, which is .33, an increase. ROI is calculated as net income divided by total assets. One way to solve this problem is to set up some actual numbers for a basic ROI. For example, sales = $500,000, expenses = $400,000, net income = $100,000 and total assets = $400,000. ROI = $100,000 ÷ $400,000, or .25. If we decrease sales and increase expenses by $25,000 each, sales will decrease to $475,000, expenses will increase to $425,000, and net income will fall to $50,000. ROI will become $50,000 ÷ $400,000, which is lower.
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