Urot, Karl Dominique

IT101M
10/28/2023
The Entrepreneurial Mind
07 Activity 2

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

COMPUTATION:
Booboo division – (24,950 / 311,900) * 100 = 7.99%
Splint division – (17,500 / 177,950) * 100 = 9.83%
Intensive care division – (28,500 / 475,000) * 100 = 6%

- The award should be given to Splint division as they have a higher percentage of
ROA compare to Intensive Care Division. This is important since the goal of a
company is to efficiently maximize profit while minimizing the assets used.

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.

COMPUTATION:
Beginning Assets – (1,000,000 / 20,000,000) * 100 = 5%
Ending Assets – (2,000,000 / 20,000,000) * 100 = 10%

- Based on the computation for the ROA, there is 5% increased of assets from
Beginning Assets to Ending Assets.

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 is P25,000. Compute Dave’s debt ratio.
COMPUTATION:
Debt Ration = (Total Liabilities / Total Assets)
= (25,000 / 5,000,000)
= 0.005
= 0.005 * 100
= 0.5%