Chapter 2: 28BP_a (page 84)

Quantum Moving Company has the following data. Industry information also is shown.
Company Data
Industry data on
Year
Net Income
Total Assets
Net income/Total assets
20X1
$424,000
$2,843,000
14%
20X2
428,000
3,267,000
9.8
20X3
412,000
3,834,000
3.9
Company Data
Industry data on
Year
Debts
Total Assets
Debts/Total assets
20X1
$1,722,000
$2,843,000
56.6%
20X2
1,732,000
3,267,000
42
20X3
1,950,000
3,834,000
38
As an industry analyst comparing the firm to the industry, are you likely to praise
or criticize the firm in terms of the following?
a) Net income/Total assets.

Short Answer

Expert verified

As an industry analyst, the company is praised because its return on assets is more than the industry.

Step by step solution

Net Income to total assets ratio of the company for the year ending 20X1:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 424, 000}{$ 2, 843, 000} \\ = & 14.91 % \end{array}$

Net Income to total assets ratio of the company for the year ending 20X2:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 428, 000}{$ 3, 267, 000} \\ = & 13.10 % \end{array}$

Net Income to Total assets ratio of the company for the year ending 20X3:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 412, 000}{$ 3, 834, 000} \\ = & 10.75 % \end{array}$

Comparison of the net income to total assets ratio between the company and the industry

Year	Company	Industry
20X1	14.91%	14%
20X2	13.10%	9.8%
20X3	10.75%	3.9%

The company is earning more income on its assets in comparison to that of the industry. This is why the industry should be praised.

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	20X1	20X2
Sales	\(8,000,000	\)10,000,000
Cost of goods sold	6,000,000	9,000,000
Inventory	800,000	1,000,000

Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

Short Answer

Step by step solution

Net Income to total assets ratio of the company for the year ending 20X1:

Net Income to total assets ratio of the company for the year ending 20X2:

Net Income to Total assets ratio of the company for the year ending 20X3:

Comparison of the net income to total assets ratio between the company and the industry

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Company Data	Industry data on
Year	Net Income	Total Assets	Net income/Total assets
20X1	\(424,000	\)2,843,000	14%
20X2	428,000	3,267,000	9.8
20X3	412,000	3,834,000	3.9