1.

To determine if the management should continue with their decision to award the Intensive Care
Division based on its high operating profit, we can calculate the Return on Assets (ROA) for each
division. ROA is a financial ratio that measures how effectively a company is utilizing its assets to
generate profits.

ROA = Operating Profit / Average Total Assets

Let's calculate the ROA for each division:

Booboo Division: ROA = ₱24,950 / ₱311,900 = 0.08 or 8%

Splint Division: ROA = ₱17,500 / ₱177,950 = 0.098 or 9.8%

Intensive Care Division: ROA = ₱28,500 / ₱475,000 = 0.06 or 6%

Based on the ROA calculations, the Splint Division has the highest return on assets with 9.8%. Therefore,
if the management wants to award the division with the highest profitability relative to its asset
utilization, they should consider awarding the Splint Division instead of the Intensive Care Division.

Remember, financial ratios provide insights into a company's performance, but it's important to consider
other factors such as market conditions, strategic goals, and potential growth opportunities before
making a final decision.

2. To compute Charlie's Construction Company's return on assets (ROA), we can use the formula:

ROA = Net Income / Average Total Assets

First, let's calculate the average total assets:

Average Total Assets = (Beginning Assets + Ending Assets) / 2

Average Total Assets = (₱1,000,000 + ₱2,000,000) / 2 = ₱1,500,000

Now, let's calculate the ROA:

ROA = ₱20,000,000 / ₱1,500,000 = 13.33 or 1333%

 Interpreting the result: Charlie's Construction Company has an ROA of 1333%, which means that
for every peso of assets, the company generated a return of 13.33 pesos in net income. This
indicates that the company is highly efficient in utilizing its assets to generate profits.

3. To compute Dave's debt ratio, we can use the formula:

Debt Ratio = Total Liabilities / Total Assets

Let's calculate Dave's debt ratio:

Debt Ratio = P25,000 / P5,000,000 = 0.005 or 0.5%

Dave's debt ratio is 0.5%, which means that his total liabilities make up only a small portion of
his total assets. This indicates that Dave has a low level of debt relative to his assets.
Instruction: Respond to the scenario below by using the P-M-I Chart. Write your answers in the
spaces
provided. (20 points)
• In the Interesting box, write some facts about the specific financial statement.
Scenario: Shark Loans received a request for a construction loan from Wendy Services Inc. This
construction loan will be used to build their fifth branch in Pasay. The company submitted its
balance
sheet and income statement. Help Shark Loans choose which financial statement they would use
as a
basis on whether they will accept or reject Wendy Services Inc.'s request. Refer to Page 2. Justify
your
decision.