1.

The management of
International Heal Medical
Company is evaluating the
performance of its
three (3) divisions. The Booboo
Division had operating profit of
P24,950 and on average used
assets with a book value of
P311,900. The Splint Division had
an operating profit of P17,500 and
used average assets of P177,950.
The Intensive Care Division had
an operating profit of P28,500
and average assets of P475,000.
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.
1. The management of
International Heal Medical
Company is evaluating the
performance of its
three (3) divisions. The Booboo
Division had operating profit of
P24,950 and on average used
assets with a book value of
P311,900. The Splint Division had
an operating profit of P17,500 and
used average assets of P177,950.
The Intensive Care Division had
an operating profit of P28,500
and average assets of P475,000.
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.
Name: BSTM 3-1

1. The management of International Heal Medical Company is evaluating the performance

of its three (3) divisions. The Booboo Division had operating profit of P24,950 and on
average used assets with a book value of P311,900. The Splint Division had an operating
profit of P17,500 and used average assets of P177,950. The Intensive Care Division had
an operating profit of P28,500 and average assets of P475,000. 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.

Income
Return on Assets ¿ or Return on Investments
Average Total Asset
Income after income tax
¿
Average Stockholder ' sEquity

Php . 24 , 950
Booboo Division:
Php . 311,900

= 0.0799 or 0.08 or 8%
Php. 17,500
Splint Division:
Php .177 , 950
 = 0.98 or 9.8%
Php .28,500
Intensive Care Division:
Php .475,000

= 0.06 or 6%

In light of my calculations, the administration shouldn't go on with the choice of

granting the Intensive Care Division because out of the three divisions, it has the most
reduced ROA with 6%. The one that ought to get the honor is the Splint Division with a 9.8%
ROA.
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 P1,000,000 and an ending balance of P2,000,000 of assets. During the current year,
Charlie’s company had a net income of P20,000,000. Compute for the company’s return
on assets and interpret the results.

Average Total Assets = (Php. 1,000.000 + Php. 2,000.000)/2 = Php. 1,500.000

Income
Return on Assets =
Average Total Assets

Php .20,000 .000

Return on Assets =
Php .1,500 .000

Return on Assets = 13.33333333

From the calculation, we can see that Charlie's Construction Company has a ROA of
13.33 or 13. That implies that the business is creating a gigantic gain which is an extremely
pleasant thing for a business. That likewise implies that the business is moving along as
expected and working effectively.

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 P5,000,000 and total liabilities of P25,000.
Compute Dave’s debt ratio.

Total Liabilities
Debt Ratio =
Total Asse ts

Php .25,000
Debt Ratio =
Php .5,000 .000

Debt Ratio = 0.005 or 0.5%

Average Stockholder’s Equit