David Frederick Profeta

The Entrepreneurial Mind - SY2020-1T

07 Activity 2 – ARG

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.

 There is 6% ROI for the Intensive Care Division, the management should continue with this
decision just simply because they’re making a profit.

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.

 1,333.3 % = 20,000,000
(1,000,000 +2,000,000) / 2
 Charlie’s ratio is 1,333.3 percent. In other words, every dollar that Charlie invested in assets
during the year produced $13.3 of net income. Depending on the economy, this can be a
healthy return rate no matter what the investment is.

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. Compute for Dave's debt ratio.

 2.25 = 25,000
100,000
 Dave only has a debt ratio of .25. In other words, Dave has 4 times as many assets as he has
liabilities. This is a relatively low ratio and implies that Dave will be able to pay back his loan.
Dave shouldn’t have a problem getting approved for his loan.

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