Question

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

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:

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

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

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

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

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

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.