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    07 Activity 2

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    thalhia nava
    The management of International Heal Medical Company is evaluating the performance of its three divisions based on their operating profit and average assets. The Intensive Care Division had the highest operating profit but the lowest return on investment at 6% compared to 8% for Booboo Division and 10% for Splint Division. Therefore, the document recommends that the management should award the Splint Division rather than the Intensive Care Division based solely on operating profit, as Splint Division achieved the highest return on investment.

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    07 Activity 2

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    thalhia nava
    24 views2 pages
    The management of International Heal Medical Company is evaluating the performance of its three divisions based on their operating profit and average assets. The Intensive Care Division had the highest operating profit but the lowest return on investment at 6% compared to 8% for Booboo Division and 10% for Splint Division. Therefore, the document recommends that the management should award the Splint Division rather than the Intensive Care Division based solely on operating profit, as Splint Division achieved the highest return on investment.

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    The management of International Heal Medical Company is evaluating the performance of its three divisions based on their operating profit and average assets. The Intensive Care Division had the highest operating profit but the lowest return on investment at 6% compared to 8% for Booboo Division and 10% for Splint Division. Therefore, the document recommends that the management should award the Splint Division rather than the Intensive Care Division based solely on operating profit, as Splint Division achieved the highest return on investment.

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

    07 Activity 2

    Uploaded by

    thalhia nava
    The management of International Heal Medical Company is evaluating the performance of its three divisions based on their operating profit and average assets. The Intensive Care Division had the highest operating profit but the lowest return on investment at 6% compared to 8% for Booboo Division and 10% for Splint Division. Therefore, the document recommends that the management should award the Splint Division rather than the Intensive Care Division based solely on operating profit, as Splint Division achieved the highest return on investment.

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    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.

    Income after Income Tax


    Return on Investment= Average Stockholde r' s Equity

    Booboo Division Splint Division Intensive Care Division

    ₱ 24,950
    ROI = ₱ 311,900 ₱ 17,500
    ROI = ₱ 177,950
    ₱ 28,500
    ROI = ₱ 475,000

    ¿ 0.08 ¿ 0.1 ¿ 0.06


    The management shouldn’t continue their decision to award the Intensive Care Division relying on its
    high operating profit. The reason for this occurrence is that Intensive Care Division has the lowest
    percentage of return. They should award the Splint Division for they have the highest percentage of return
    compare to the two (2) 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.
    Income
    Return on assets=
    Average Total Assets
    Average Total Assets=₱ 1,000,000+ ₱ 2,000,000

    ₱
    ¿ 3,000,
    000 2
    ¿ ₱ 1,500,000

    ₱ 20,000,000
    ROA= ₱ 1,500,000

    ¿ 13.33
    Charlie’s ROA is 13.33 percent, which means that every peso that Charlie invested in assets during the
    year produced a 13.33 percent of income.

    This study source was downloaded by 100000812478828 from CourseHero.com on 10-29-2022 23:41:38 GMT -05:00

    https://www.coursehero.com/file/78384049/07-Activity-2docx/
    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.
    Dave’s total assets = ₱5,000,000
    Dave’s total liabilities = ₱25,000

    Total Liabilities
    Debt Ratio= Total Assets

    ₱ 25,000
    DR= ₱ 5,000,000

    ¿ 0.01 Dave’s debt ratio is 0.01.

    This study source was downloaded by 100000812478828 from CourseHero.com on 10-29-2022 23:41:38 GMT -05:00

    https://www.coursehero.com/file/78384049/07-Activity-2docx/

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