28BP_a Quantum Moving Company has the f... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

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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Times mirror and glass company
Sales	\(126,000
Less: Cost of goods sold	93,000
Gross profit	\)33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\(18,000
Less: Interest expenses	3,000
Earning before taxes	\)15,000
Less: Taxes (30%)	4,500
Earning after taxes	$10,500

	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

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder鈥檚 equity	239,000	423,000

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder鈥檚 equity	239,000	423,000

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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