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    Melroe Adriane M. Alcantara BSA 103 The Entrepreneurial Mind

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    Ronald varrie Bautista
    This document contains 3 sample problems on financial ratios with solutions. The first problem analyzes the performance of 3 divisions of a company based on their operating profit and average assets, concluding that return on assets is the best metric to use. The second problem calculates the return on assets of a construction company, showing it has over 100% return on assets. The third problem computes the debt ratio of a guitar shop applying for a loan, finding it has a low debt ratio of 0.5%.

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    Melroe Adriane M. Alcantara BSA 103 The Entrepreneurial Mind

    Uploaded by

    Ronald varrie Bautista
    38 views2 pages
    This document contains 3 sample problems on financial ratios with solutions. The first problem analyzes the performance of 3 divisions of a company based on their operating profit and average assets, concluding that return on assets is the best metric to use. The second problem calculates the return on assets of a construction company, showing it has over 100% return on assets. The third problem computes the debt ratio of a guitar shop applying for a loan, finding it has a low debt ratio of 0.5%.

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    Entrep 07 Activity 23 Converted

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    This document contains 3 sample problems on financial ratios with solutions. The first problem analyzes the performance of 3 divisions of a company based on their operating profit and average assets, concluding that return on assets is the best metric to use. The second problem calculates the return on assets of a construction company, showing it has over 100% return on assets. The third problem computes the debt ratio of a guitar shop applying for a loan, finding it has a low debt ratio of 0.5%.

    Copyright:

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

    Melroe Adriane M. Alcantara BSA 103 The Entrepreneurial Mind

    Uploaded by

    Ronald varrie Bautista
    This document contains 3 sample problems on financial ratios with solutions. The first problem analyzes the performance of 3 divisions of a company based on their operating profit and average assets, concluding that return on assets is the best metric to use. The second problem calculates the return on assets of a construction company, showing it has over 100% return on assets. The third problem computes the debt ratio of a guitar shop applying for a loan, finding it has a low debt ratio of 0.5%.

    Copyright:

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

    GE1715

    Melroe Adriane M. Alcantara


    BSA 103
    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 ₱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.

    I disagree with the International Heal Medical Company for three reasons. To begin, if the company
    is to be based on the operational profits of these three divisions, they must utilize the profit margin,
    also known as the return on sales ratio, to determine which firm produces the most profit in a year.
    Second, I propose that the corporation examine the stockholders' ratio. They may check which
    divisions provide the best benefits for the company. Finally, given the statements include aspects of
    return on assets (ROA), I believe they should be used. Return on assets, or ROA, is another
    example of a metric that shows how successful a firm may be in the long term. If you are able to
    utilize the ROA. If the company use the ROA you can see that the Splint Division has the highest
    ROA percentage which is 9.83% while the Intensive Care Division only got 6% and the Booboo
    Division got 8.8%. In this case the higher the ratio the better.

    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.

    The formula in the return on assets was income divided by average assets. To compute the return
    on assets of Charlie’s Construction Company we should add the beginning assets and ending
    assets then divide it into 2 to get the average asset.

    It was shown on the result that the return on assets of Charlie’s Construction Company has more
    that a 100 percent. It means that the company utilize well the company assets. The company can
    also compare their ROA into similar companies. But ROA can’t be use on investors and creditors
    because didn’t show the feasibility of the company to pay the debt unless the company has no debt
    the ROA results will be equal to ROE.
    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 ₱5,000,000 and total liabilities of ₱25,000. Compute for Dave’s debt ratio.

    To get the debt ratio of the company it muse divide the liabilities to the assets.

    The results of the Dave’s Guitar Shop debt ratio is 0.5%. It means that the Dave’s Guitar Shop can
    pay the loan at ease. The lower the percentage of the company’s debt ratio A debt ratio of greater
    than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100%
    indicates that a company has more assets than debt.

    Rubric for checking:


    CRITERIA POINTS
    Complete solution with correct answer 5
    Last two (2) major steps of the solution are incorrect 4
    Half of the solution is correct 3
    First two (2) major steps of the solution are correct 2
    First major step of the solution is correct 1

    07 Activity 2 *Property of STI


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