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    Financial Ratios

    Uploaded by

    Bae MaxZ
    The document discusses the return on investment (ROI) for three divisions of an international medical company - Booboo, Splint, and Intensive Care. While Intensive Care had the highest operating profit, the Splint division achieved the highest ROI of 9%. It also calculates the extremely high return on assets ratio of 1,333.3% for Charlie's Construction Company, indicating each dollar invested in assets generated a $13.33 profit. Finally, it computes Dave's Guitar Shop's low debt ratio of 0.25, meaning it only has debt equivalent to 25% of its total assets, suggesting his new loan application should not face issues.

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    Financial Ratios

    Uploaded by

    Bae MaxZ
    1K views1 page
    The document discusses the return on investment (ROI) for three divisions of an international medical company - Booboo, Splint, and Intensive Care. While Intensive Care had the highest operating profit, the Splint division achieved the highest ROI of 9%. It also calculates the extremely high return on assets ratio of 1,333.3% for Charlie's Construction Company, indicating each dollar invested in assets generated a $13.33 profit. Finally, it computes Dave's Guitar Shop's low debt ratio of 0.25, meaning it only has debt equivalent to 25% of its total assets, suggesting his new loan application should not face issues.

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    The document discusses the return on investment (ROI) for three divisions of an international medical company - Booboo, Splint, and Intensive Care. While Intensive Care had the highest operating profit, the Splint division achieved the highest ROI of 9%. It also calculates the extremely high return on assets ratio of 1,333.3% for Charlie's Construction Company, indicating each dollar invested in assets generated a $13.33 profit. Finally, it computes Dave's Guitar Shop's low debt ratio of 0.25, meaning it only has debt equivalent to 25% of its total assets, suggesting his new loan application should not face issues.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views1 page

    Financial Ratios

    Uploaded by

    Bae MaxZ
    The document discusses the return on investment (ROI) for three divisions of an international medical company - Booboo, Splint, and Intensive Care. While Intensive Care had the highest operating profit, the Splint division achieved the highest ROI of 9%. It also calculates the extremely high return on assets ratio of 1,333.3% for Charlie's Construction Company, indicating each dollar invested in assets generated a $13.33 profit. Finally, it computes Dave's Guitar Shop's low debt ratio of 0.25, meaning it only has debt equivalent to 25% of its total assets, suggesting his new loan application should not face issues.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 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 ₱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.

    The Splint Division is doing highest with a ROI of 9%. ROI is a good place to equate divisions of
    varying sizes. We measure ROI as operating profit separated by average assets.

    499/6,238 = 8% ROI for the Booboo Division.


    350/3,889 = 9% ROI for the Splint Division.
    570/9,500 = 6% ROI for the Intensive Care Division.

    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.

    Return on Assets Ratio

    20,000,000
    1,333.3% =
    (1,000,000+2,000,000)/2

    As we can see, the ratio for Charlie is 1,333.3 percent. Every dollar Charlie invested in the year's
    assets produced P 13.3 net profits. This will be a reasonable return rate, regardless of what the
    expenditure is. To consider how effectively Charlie handles his money, investors will have to
    equate Charlie's return with his company's other construction firms.

    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.

    100,000
    25,000
    = 0.25

    Dave has a debt ratio of just 0,25. In other words, he has four times the amount of money that
    Dave has. This is a very low ratio, meaning that his loan will be paid back by Dave. The
    acceptance of his loan should not be a problem for Dave.

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