The Importance of Income

a. The success of a company’s efforts is often judged by the amount of income it earns.

1. How does the fact that a company manufactures television sets and generates a profit from its operations indicate society values its activities?

2. How is reported income used in forecasting future cash flows?
3. Should investors rely primarily on the amount reported as net income in assessing a company’s future earnings potential and cash flows? What effect will an unexpected or unusual event have on these assessments?

b. You are considering buying an insurance agency and have received the following information on two agencies operating in your city:

Which agency seems to be the more efficiently operated?
Explain why.

Transcribed Image Text:

Total revenue for the year Agency A $100,000 Agency B $125,000 Total operating expenses for the year 60,000 88,000 Nonoperating income and expense Net income Total number of insurance policies sold -0- -0- $ 40,000 $ 37,000 1,000 1,250