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Business Analytics (2nd Edition)

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Problem

Return on investment (ROI) is computed in the following manner: ROI is equal to turnover My Textbook Solutions
multiplied by earnings as a percent of sales. Turnover is sales divided by total investment. Total
investment is current assets (inventories, accounts receivable, and cash) plus fixed assets.
Earnings equal sales minus the cost of sales. The cost of sales consists of mill cost of sales,
selling expenses, freight and delivery, and administrative costs.

a. Construct an influence diagram that relates these variables.

Business Business Signals,
b. Define symbols and develop a mathematical model. Analytics Statistics Systems, &.
2nd Edition 2nd Edition 5th Edition

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Step 1 of 8 right now

An influence diagram is a graphical representation of how a final decision is made. Annie

University of Birmi… 1071

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University of South… 529

Step 2 of 8 Maria
MSU-IIT 2054

a.
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Construct an influence diagram by considering each metric in terms of its components.

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b.
Chapter 1, Problem 12PE 9 Bookmarks Show all steps: ON

Define each of the metrics, using symbols as follows:

ROI = return on investment

T = turnover

E = earnings

S = sales

TI = total Investment

CA = current assets

FA = fixed assets

I = inventories Walkthrough
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AR = accounts receivable

C = cash

CoS = cost of sales

MCoS = mill cost of sales

SE = selling expenses

F&D = freight and delivery

AC = administrative costs

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Step 4 of 8

A mathematical model can be developed by converting each statement into an equation, and
substituting where appropriate.

ROI is equal to turnover multiplied by earning as a percent of sales.

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Step 5 of 8

Turnover is sales divided by total investment.

Substitute for T into the ROI equation.

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Step 6 of 8

Total investment is current assets (inventories, accounts receivable, and cash) plus fixed assets.

Substitute for TI in the equation for ROI.

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Chapter 1, Problem 12PE

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Step 7 of 8

Earnings equal sales minus the cost of sales.

Substitute for E in the equation for ROI.

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Step 8 of 8

The cost of sales consists of mill cost of sales, selling expenses, freight and delivery, and
administrative costs.

Substitute for CoS in the ROI equation.

The mathematical model developed is given below:

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