Name : Mejia , Andrew Ben M.

Section: BSIT 1 – 1 , AA

1. The management of International Heal Medical Company is evaluating the performance of its three (3) divisions. The Booboo
Division had an 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 plans to award the Intensive Care Division, relying on its high operating profit.
₱Should the management continue with this decision? Justify your answer.

0.079 x 100 = 7.9%

= 0.06 x 100 = 6.0%

0.098 x 100 = 9.8%

Solution: - Booboo Division: 24, 950 / 311, 900 = 0. 0799 or 7. 99%

- Splint Division: 17, 500 / 177, 950 = 0. 0983 or 9. 83%

- Intensive Care Division: 28, 500 / 475, 000 = 0. 06 or 6%

No, the Intensive Care Division should not continue to get awards from management. The reason being that the Intensive
Care Division's operating profit is significantly lower than the other two divisions, at 6%. In addition, operational profit for
Booboo Division jumped 7.9 percent, surpassing that of Intensive Care Division. At 9.8 percent, the Splint Division's
operational profit was the highest. Because Splint Division's operational profit is higher, the company must give it the reward.
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2. Charlie’s Construction Company is a growing construction business with 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 assets. During the current year,
Charlie’s company had a net income of ₱20,000,000. Compute 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 1,500,00 13.33333

Solution: Net Income/ Average Assets

= 20,000,000/ [(1,000,000 + 2,000,000)/2]

= 20,000,000/ (3,000,000/2) =20,000,000/ 1,500,000

=13.33, ROA is 13.33

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3. Dave’s Guitar Shop is thinking about building an additional property 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.
Dave’s total assets is P5,000,000 while his total liabilities are P25,000. Compute Dave’s debt ratio.

Given: Total assets: ₱ 5,000,000 Liabilities: ₱ 25,000 Find: Dave's debt ratio

Formula: Debt Ratio: Total liabilities/ Total assets

Solution: Total liabilities/ Total assets

Debt Ratio = 0.005 or 0.5

The bank is likely to approve Dave's new loan due to his excellent management of his liabilities. A modest and good debt-to-
income ratio of 0.5 applies to him. Lenders use the debt ratio as a measure of your financial stability to decide whether to
grant you a new loan.