GE1715

SAMPLE PROBLEMS ON FINANCIAL RATIOS

1. The management of International Heal Medical Company is evaluating the performance of its three (3)
divisions. The Booboo Division had operating profit of ₱24,950 and on average used assets with a book value of
₱311,900. The Splint Division had an operating profit of ₱17,500 and used average assets of
₱177,950. The Intensive Care Division had an operating profit of ₱28,500 and average assets of
₱475,000. The company is planning to award the Intensive Care Division relying on its high operating profit.
Should the management continue with this decision? Justify your answer.

Bamboo Division :
Php. 24,950 ROI = Sprint Division Intensive Core Division
Php. 17,500ROI Php. 28,500ROI =
X 100 = X 100 X 100
Php. 311,900 = Php. 177,950 = 9.83 Php. 475, 000 =6%
7.99 % OR 8 % %

2. Charlie’s Construction Company is a growing construction business that has a few contracts to build storefronts
in Pasay. Charlie’s balance sheet shows beginning assets of ₱1,000,000 and an ending balance of ₱2,000,000
of assets. During the current year, Charlie’s company had a net income of
₱20,000,000. Compute for the company’s return on assets and interpret the results.

- Php. 1,000,000 + 2,000,000 = Php. 3,000,000

Php. 3,000,000 =
Php. 1,000,000 2

Php . 20,000,000 ROA

= X 100%
Php. 1,500,000 =
13.33 %

3. Dave’s Guitar Shop is thinking about building an addition onto the back of its existing building for more
storage. Dave consults with his banker about applying for a new loan. The bank asks for Dave’s balance to
examine his overall debt levels. The banker discovers that Dave has total assets of ₱5,000,000 and total
liabilities of ₱25,000. Compute for Dave’s debt ratio.

Php.
25,000DEBT RATIO =

Php. 5,000,000
= .005

Rubric for checking:

CRITERIA POINTS
Complete solution with correct answer 5
Last two (2) major steps of the solution are incorrect 4
Half of the solution is correct 3
First two (2) major steps of the solution are correct 2
First major step of the solution is correct 1

07 Activity 2 *Property of STI

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