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The Booboo Division: Sample Problems On Financial Ratios

This document contains 3 sample problems on calculating financial ratios from company financial data. The first problem examines the return on investment (ROI) of 3 divisions of a company based on their operating profits and average asset values to determine which division should receive an award. The second problem calculates the return on assets (ROA) for a construction company based on its beginning and ending asset balances and net income. The third problem calculates the debt ratio for a guitar shop based on its total assets and total liabilities.

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Bryan Ballesteros
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1K views2 pages

The Booboo Division: Sample Problems On Financial Ratios

This document contains 3 sample problems on calculating financial ratios from company financial data. The first problem examines the return on investment (ROI) of 3 divisions of a company based on their operating profits and average asset values to determine which division should receive an award. The second problem calculates the return on assets (ROA) for a construction company based on its beginning and ending asset balances and net income. The third problem calculates the debt ratio for a guitar shop based on its total assets and total liabilities.

Uploaded by

Bryan Ballesteros
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

GE1715

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.

Answer:

Divisions:

The Booboo Division


 Operating Profit = ₱ 24, 950
 Average Assets = ₱311, 900

₱ 24, 950
RIO of Booboo Division = = 0.079 = 0.08 x 100 = 8%
₱ 311, 900

The Splint Division


 Operating Profit = ₱ 17, 500
 Average Assets = ₱ 177, 950

₱ 17, 500
RIO of Splint Division = = 0.098 = 0.10 x 100 = 10%
₱ 177, 950

The Intensive Care Division


 Operating Profit = ₱ 28, 500
 Average Assets = ₱ 475, 000

₱ 28, 500
RIO of intensive Care Division = = 0.06 x 100 = 6%
₱ 475, 000

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.

Answer:

Income
ROA =
Average Total Assets

₱ 20, 000, 000


ROA =
₱ 1, 000, 000 + ₱ 2, 000, 000
₱ 20, 000, 000
ROA=
₱ 3, 000, 000

Return on Assets = 6.667 or 666.7%

 Since the result of ROA has over 5% it means that Charlie’s construction company is
earning more money on less investment.

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.

Answer:

Total Liabilities
Debt Ratio =
Total Assets

₱ 25, 000
Debt Ratio =
₱ 5, 000

Debt Ratio = 0.0005 or 5%

Name: Benz Bryan S. Ballesteros


Section: BT103A

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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