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    Joennel M. Semilla Ms. Rowena Garcia The Entrepreneurial Mind Sample Problems On Financial Ratios

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    Joennel Semilla
    Dave's debt ratio is very low at 0.005%. This indicates that Dave has very little debt relative to his total assets. A low debt ratio generally means a company has strong financial flexibility and is at low risk of defaulting on its debt obligations. The banker will likely view Dave as a low-risk borrower given his strong financial position and low debt ratio.

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    Joennel M. Semilla Ms. Rowena Garcia The Entrepreneurial Mind Sample Problems On Financial Ratios

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    Dave's debt ratio is very low at 0.005%. This indicates that Dave has very little debt relative to his total assets. A low debt ratio generally means a company has strong financial flexibility and is at low risk of defaulting on its debt obligations. The banker will likely view Dave as a low-risk borrower given his strong financial position and low debt ratio.

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    Dave's debt ratio is very low at 0.005%. This indicates that Dave has very little debt relative to his total assets. A low debt ratio generally means a company has strong financial flexibility and is at low risk of defaulting on its debt obligations. The banker will likely view Dave as a low-risk borrower given his strong financial position and low debt ratio.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    172 views2 pages

    Joennel M. Semilla Ms. Rowena Garcia The Entrepreneurial Mind Sample Problems On Financial Ratios

    Uploaded by

    Joennel Semilla
    Dave's debt ratio is very low at 0.005%. This indicates that Dave has very little debt relative to his total assets. A low debt ratio generally means a company has strong financial flexibility and is at low risk of defaulting on its debt obligations. The banker will likely view Dave as a low-risk borrower given his strong financial position and low debt ratio.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Joennel M. Semilla Ms.

    Rowena Garcia
    BSA103 The Entrepreneurial Mind

    SAMPLE PROBLEMS ON FINANCIAL RATIOS

    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.

    First, we need to use the formula of Return on Assets to know who among the division has a big
    return on assets to be awarded.
    Income
    Return on Assets = Average total Assets
    P 24,950
     Booboo Division = 0.08% Return on Assets
    P 311,900
    P 17,500
     Splint Division = 0.1% Return on Assets
    P 177,950
    P28,500
     Intensive Care Division = 0.06% Return on Assets
    P 475,000

    With this result, the company management should not to continue with the decision of giving
    award to Intensive Care Division by just relying on its high operating profit. Why? Because if
    you are to calculate and analyze the three division, Splint division deserve to be awarded since
    this particular division has a higher Return on Asset compare to the Intensive Care unit and
    Booboo Division. Which indicates that Splint Division utilized the company's assets effectively
    and efficiently. Always remember that an increasing ROA suggests the profitability of the
    company is increasing. On the other hand, a decreasing ROA can be an indication that the
    company's performance is deteriorating.

    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.

    P 20,000,000
    = 13.333333333% is the Company’s Return on Assets
    (P 1,000,000+ P2,000,000)/2

    Charlie's Construction Company ratio is 13.333333333%. It means that for every peso that
    Charlie invested in assets during the year produced 13.33333333% of net income. This indicates
    a healthy return rate. Return on assets is a measure of how effectively a company uses its assets.
    The higher is this figure, the better is the utilization of the company's assets. In Charlie's case we
    can conclude that there is a proper utilization of the company's asset since its return on assets is
    higher.

    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 discovered that
    Dave has a total asset of P5,000,000 and total liabilities of P25,000. Compute for Dave’s
    Debt Ratio.
    Total Liabilities
    Debt Ratio =
    Total Assets

    P 25,000
    = 0.005% is the Debt Ratio of Dave
    P 5,000,000

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