I. BACKGROUN B ACKGROUND D
Generics is a very diversified company with interests in real estate, food and beverages, health and beauty, recreation and leisure, fashion and accessories. ROA is one of the Groups’ measures in the evaluation of its divisions’ performance. It has been the Groups’ policy to adopt a 1! target ROA for all its divisions. In 1"#$, the %hoe &ivisi &ivision on was ac'uired ac'uired and added added by the Group Group which which is curren currently tly managed by %tephen (anlapig.
)he top management of %hoe &ivision proposed the addition of %hoe%hoc* to its product line. )o produce %hoe%hoc*, the company will need machinery which would have a 1+year useful life without any salvage value. )his will be utili-ed solely for the production of special soles which is part of the %hoe%hoc* that has a $year product life cycle. (r. (anlapig is concerned about the potential impact on his divi divisi sion on’s ’s ROA ROA of the the plan planne ned d intro introdu duct ctio ion n of %hoe %hoe%h %hoc oc*. *. y his his decision, the net income and asset base of the division, and the overall profitability of the Group would be significantly affected.
II. SUPPORTING COMPUTATIONS
)he )he %hoe %hoe &ivis &ivisio ion n head headed ed by %tep %tephe hen n (anl (anlap apig ig,, Gene Genera rall (anage (anager, r, should should implem implement ent the pro/ec pro/ect, t, %hoes %hoeshoc hoc*. *. ased ased on the computation of ROA in 0hibit 2, this shows that the target Return on Asset 3ROA4 of 1! of the Group was achieved by the implementation of the new pro/ect, %hoeshoc*, which is 2$.$!. 5omparing the results of 0hibit 1, the original ROA of the company last year, and 0hibit 2, the ROA for the following year, it clearly indicates that the ROA of the %hoe %hoe divisi division on eceed eceeded ed its origin original al ROA by 2.$$! 2.$$! point points s with with the investment in %hoe%hoc*. 6IG7R0 1 Gross 8rofit Rate ¿ GPR =
Gross profit Sales
0hibit 1 %hoe &ivision Income %tatement 6or the recent calendar year
%ales :;,22",+++ 5ost of goods sold 2;,<:",+++ Gross 8rofit $",;;+,+++ 49,550,000 ¿ Operating 0penses 75,229,000 %elling, general, administrative and 0hibit interest 2 2:,:$1,+++ 2:,:$1,+++ ¿ 65.87 &epr &e %hoe prec ecia &ivision iati tio on 1+,:: +,::2, 2,++ +++ + #,; #,;1,+ 1,++ ++ OIncome perating%tatement Income 11,+:,+++ Incom6or e )ayear 1 ,;2,+++ 9Original G8R P7,505,000 =et Income Gro∧+ ss 8 ;",:$,:<$.+ 5 rofit GPR =65.87 Operating 0penses Operatingincome ROA = %elling, general, administrative Average Average ating Asset ¿ 70.87 and interest ,2"$,$<.1 &epreciation 12,+:2,+++ dditio dditional nal cost cost 11,037,000 2,+++, 2,+++,++ +++ + 3$:,< 3$:,<<,$ <,$<. <.14 14 %hoeshoc*’sAG8R ¿ P12,377,327.99 Operating Income50,193,000 ROA =
¿
Operating Operating income income 21.99 = ROA Average AverageOperating Operating Asset
12,377,327.99 50,657,000
=ow, let us compare the results of the first year of forecast 30hibit 24 and the second year of forecast 30hibit 4. 5omputations show show that that ther there e is an incr increa ease se in the the ROA ROA of the the %hoe %hoe &ivi &ivisi sion on resulting to a percentage of ".$;!. depre epreci cia atio tion, 0hibit the the tota to;tall cost ost of the the mac machine hinery ry,, %hoe &ivision Income 81,+++,+++, was depreciated for %tatement the 1+ year useful life, to be added 6or year 2 6or the the
to the original depreciation epense of the 5ompany. 5ompany. Gross 8rofit ;","2,2;<.$+ Operating 0penses %elling, general, administrative and interest 2:,:$1,+++ &epr &eprec ecia iati tio on 1+,:: +,::2, 2,++ +++ + 3# 3#,;1 ,;1,+ ,++ ++4 P21,410,256.4 Operating Income ROA =
¿
Operating Operating income income Average AverageOperating Operating Asset
21,410,256.4 50,193,000
0hibit %hoe &ivision Income %tatement 6or year 2 Gross 8rofit :1,<+<,##$.<+ Operating 0penses %elling, general, administrative and interest ",<2;,;:$."; &ep &epreci reciat atio ion n 12,+ 2,+:2,+ :2,++ ++ 3;1 3;1,<": ,<":; ;:$." :$.";4 ;4 P19,909,309.65 Operating Income ROA =
¿
Operating Operating income income Average AverageOperating Operating Asset
19,909,309.65 50,471,000
ROA =39.45
0hibits $ and ; present the ROA of the 5ompany when it does not implement the %hoeshoc* pro/ect. 0hibit $9 %hoe &ivision Income %tatement 6or year 1 Gross 8rofit ;;,"11,11$.:+ Operating 0penses %elling, general, administrative and interest 1,++,21$.2" &epr &eprec ecia iati tion on 1+,: 1+,::2 :2,+ ,+++ ++ 3$2, 3$2,+: +:2, 2,21 21$. $.2" 2"44 P13,838,900.41 Operating Income ROA =
¿
Operating Operating income income Average AverageOperating Operating Asset
13,838,900.41 44,807,000
ROA =30.89 9Income %tatement without the implementation of %hoeshoc* for 2 nd year
0hibit ;9 %hoe &ivision Income %tatement 6or year 2 Gross 8rofit ;","2,2;<.$+ Operating 0penses %elling, general, administrative and interest ,;$<,2";.$ &epre eprec ciati iation on 1+,:: +,::2 2,+++ ,+++ 3$$, 3$$, 1#,2" #,2";. ;.$ $44 P15,604,961.06 Operating Income ROA =
¿
Operating Operating income income Average AverageOperating Operating Asset
15,604,961.06 34,035,000
ROA = 45.85 9Income %tatement without the implementation of %hoeshoc* for 2 nd year
In arriving at the operating income of the 5ompany, the %elling, genera general, l, admini administr strati ative ve and and intere interest st epens epense e was propor proportio tionat nately ely computed based on the year’s sales. 5omment )he implementation of the 5ompany’s new pro/ect achieves the 5ompany’s target ROA, which indicates goal congruency. congruency. 7pon first year of the implementation of the proposed pro/ect, %hoeshoc*, we observe that it has a low ROA compared to what we computed on the second year. %o we can say that the implementation needs a time to see the development of our pro/ect. )hen, comparing the ROA when
%hoeshoc* is to be implemented in >ear >ear 1 30hibit 3 0hibit 24 to the non implementation of it 30hibit $4 shows that the nonimplementation gives greater ROA than its implementation, but both of it achieves the target ROA. ?hile on the >ear >ear 2, the implementation of it 30hibit 4 shows greater ROA compared to its nonimplementation 30hibit ;4. III. RECOMMENDATION
?e, the (apagparaya, recommend that the 5ompany improve its product life cycle to promote product awareness and to develop its mar*et to encourage more buyers. ?e also suggest that the machinery used to produce the %hoeshoc* will also be used for the diversification or innovation of the product. ?e recommend that the actual sales should at least meet its target sales to lessen the epected variances. )herefore, an etensive mar*eting of the %hoeshoc* or other products of the company is needed to continuously achieve the Group’s target ROA. As mentioned earlier at the @5omment section the difference of the >ear 1’s ROA to >ear 2, we propose or loo* for a product or pro/ect that will yield to a good ROA at the start of the implementation.
CASE STUDY
GENRICS GROUP OF COMPANIES S!OE DI"ISION
Group 2 3(apagparaya4 Agustin, Borie Ann Ann Arao, (arline ueno, Caren 0lchico, Ariane Babuguen, Riva Bumingis, %onie Ra-on, Reinette Apostol, Allan Allan Gardon, Bluigi Dingapan, Eerome
