The current year’s amount of net income (after income tax) is 20% larger than that of the preceding year

Accounting Jan 22, 2021

The current year’s amount of net income (after income tax) is 20% larger than that of the preceding year. Does this indicate an improved operating performance? Discuss.

Expert Solution

Before this question can be answered, the increase in net income should be compared with changes in sales, expenses, and assets devoted to the business for the current year. The return on assets for both periods should also be compared. If these comparisons indicate favorable trends, the operating performance has improved; if not, the apparent favorable increase in net income may be offset by unfavorable trends in other areas.

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