Case SMPH Business Segment (Part 1) SM Prime Holdings is organized into business units based on their products and services and has four operating segments as follows Mall Residential Commercial Hotels and Convention Management through the executive committee monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment Segment performance is evaluated based on operating profit or loss and is measured consistently with the operating profit or loss in the consolidated financial statement Transfer prices between business segments are set on an arm's length basis similar transactions with non related parties Such transfers are eliminated in the consolidated financial statements Shown below is the business segment data of SMPH Based on the above information compute the following Compute the Return on investment (ROI) of each of the business segments Compute the Residual Income Assume that SMPH required a minimum required rate of return of 12 , 20 , 10 and 7 for the mall, residential, commercial and hotel and convention respectively and a business opportunity that would yield a return of 15 is presented to each business unit If performance is measured by ROI which division or divisions will likely accept the opportunity reject why If performance is measured by residual income which division will likely accept the opportunity reject why Part 2 Case SMPH Business Segment (Part 2) For the first half of 2020, SMPH posted net income of P10 4B, down by 46 caused by COVID19 Among the four business segments of SMPH which one do you think is the most affected and why Likewise, moving forward, which segment do you think is going to recover first from the unprecedented effects of COVID19 and why 2019 Hotels and Convention Consolidated Mall Residential Commercial Centers Eliminations Balances (In Thousands) Revenue External customers P63 540 287 P45,213,765 P4 510 820 P5,046,618 P118 311,490 Inter segment 85 072 74 100 13,662 (172,834) P63,625 359 P45,213,765 P4 584 920 P5,060,280 (P172,834) P118,311,490 Segment results Income before income tax P30,418,637 P15,020,332 P3,661 683 P1,074 405 (P1,013,063) P49,161,994 Provision for income tax (7 020 933) (2 428,262) (658 358) (265,768) (10,373,321) Net income P23 397 704 P12 592 070 P3 003 325 P808 637 (P1 013 063) P38,788 673 Net income attributable to Equity holders of the Parent P22,701,115 P12 585,587 P3 003 325 P808 637 (P1,013,063) P38,085 601 Non controlling interests 696 589 6,483 703,072 Segment assets P388,653,151 P217,786,016 P51,340,770 P13 573 854 (P4,076,117) P667 279 674 Segment liabilities P237,486 362 P124 277 871 P5 982 687 P1 092 597 (P4 076,117) P364 763 400 Other information Capital expenditures P29,283 828 P27 578,564 P10,216 823 P1,618,631 P P68,697 846 Depreciation and amortization 9 514 073 143,438 560 854 606,713 10 825 078

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Case -SMPH Business Segment (Part 1) SM Prime Holdings is organized into business units based on their products and services and has four operating segments

Case -SMPH Business Segment (Part 1)

SM Prime Holdings is organized into business units based on their products and services and has four operating segments as follows:

Mall
Residential
Commercial
Hotels and Convention

Management through the executive committee monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with the operating profit or loss in the consolidated financial statement

Transfer prices between business segments are set on an arm's length basis similar transactions with non related parties. Such transfers are eliminated in the consolidated financial statements

Shown below is the business segment data of SMPH

Based on the above information compute the following:

Compute the Return on investment (ROI) of each of the business segments.
Compute the Residual Income.
Assume that SMPH required a minimum required rate of return of 12%, 20%, 10% and 7% for the mall, residential, commercial and hotel and convention respectively and a business opportunity that would yield a return of 15% is presented to each business unit
1. If performance is measured by ROI which division or divisions will likely accept the opportunity? reject? why?
2. If performance is measured by residual income which division will likely accept the opportunity? reject? why?

Part 2

Case -SMPH Business Segment (Part 2)

For the first half of 2020, SMPH posted net income of P10.4B, down by 46% caused by COVID19.

Among the four business segments of SMPH which one do you think is the most affected and why? Likewise, moving forward, which segment do you think is going to recover first from the unprecedented effects of COVID19 and why?

2019 Hotels and Convention Consolidated Mall Residential Commercial Centers Eliminations Balances (In Thousands) Revenue: External customers P63.540.287 P45,213,765 P4.510.820 P5,046,618 P118.311,490 Inter-segment 85.072 74.100 13,662 (172,834) P63,625.359 P45,213,765 P4.584.920 P5,060,280 (P172,834) P118,311,490 Segment results Income before income tax P30,418,637 P15,020,332 P3,661.683 P1,074.405 (P1,013,063) P49,161,994 Provision for income tax (7.020.933) (2.428,262) (658.358) (265,768) (10,373,321) Net income P23.397.704 P12.592.070 P3.003.325 P808.637 (P1.013.063) P38,788.673 Net income attributable to: Equity holders of the Parent P22,701,115 P12.585,587 P3.003.325 P808.637 (P1,013,063) P38,085.601 Non-controlling interests 696.589 6,483 703,072 Segment assets P388,653,151 P217,786,016 P51,340,770 P13.573.854 (P4,076,117) P667.279.674 Segment liabilities P237,486 362 P124.277-871 P5.982.687 P1.092.597 (P4.076,117) P364.763-400 Other information Capital expenditures P29,283.828 P27.578,564 P10,216.823 P1,618,631 P- P68,697.846 Depreciation and amortization 9.514.073 143,438 560.854 606,713 10.825.078