You are studying with some classmates and are reviewing your class notes. One of your classmates makes
Question:
You are studying with some classmates and are reviewing your class notes. One of your classmates makes the following comment:
“I’m trying to understand what the trend in return on assets means. If a company shows an increasing return on assets, that’s a positive trend, isn’t it? In our homework question, Company A had a larger increase in return on assets than Company B. Company A had decreasing assets and stable net income. Company B had increasing assets and increasing net income, but this showed a much smaller increase in return on assets than Company A. My analysis showed that Company A had the better position because it had a larger return on assets. Why did I not receive full marks? I don’t understand what else there is to say about these two companies.”
Required
Identify how your classmate’s answer could be substantively improved.
Step by Step Answer:
Understanding Financial Accounting
ISBN: 9781119406921
2nd Canadian Edition
Authors: Christopher D. Burnley