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Midterm Exam Part 2

The Entrepreneurial Mind (STI College)

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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.

No, the management should not continue awarding the Intensive Care Division. If you compute the
company’s return on investments, the Splint Division has the highest.

Booboo Division

Splint Division

Intensive Care Division

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.

Beginning assets ₱1,000,000

Ending assets ₱2,000,000
Net income ₱20,000,000

Beginning assets ₱1,000,000

Add: Ending assets ₱2,000,000

Total ₱3,000,000

Divide: 2
Average total assets ₱1,500,000

Every peso that Charlie invested in assets generated 1333.33% of net income.

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.

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Total assets ₱5,000,000

Total liabilities ₱25,000

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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