The following selected information is from Acme's annual report for the years ended December 31:

-Refer to the Acme annual report above.Which of the following statements is TRUE about the return on assets for 2011 and 2012?
A)Return on assets increased in 2012 because the company made a large investment in additional property,plant & equipment in 2012.
B)Return on assets increased in 2012 because net income is 50% higher in 2012 than in 2011,while property,plant and equipment increased 87.5%.
C)Return on assets decreased in 2012 because the large investment in additional property,plant & equipment did not generate enough additional operating income.
D)Return on assets decreased in 2012 because net income for 2012 is much larger than in 2011.

Question

The following selected information is from Acme's annual report for the years ended December 31:

-Refer to the Acme annual report above.Which of the following statements is TRUE about the return on assets for 2011 and 2012?
A)Return on assets increased in 2012 because the company made a large investment in additional property,plant & equipment in 2012. 
B)Return on assets increased in 2012 because net income is 50% higher in 2012 than in 2011,while property,plant and equipment increased 87.5%. 
C)Return on assets decreased in 2012 because the large investment in additional property,plant & equipment did not generate enough additional operating income. 
D)Return on assets decreased in 2012 because net income for 2012 is much larger than in 2011.

Quizplus · Accepted Answer

Return on assets (ROA) is a measure of how efficiently a company uses its assets to generate profit. If a company makes a large investment in assets (like property, plant, and equipment) but this investment does not generate a proportional increase in operating income or net income, the ROA would decrease. This is because the denominator (assets) in the ROA calculation increases significantly, while the numerator (net income) does not increase as much or remains the same, leading to a lower ROA ratio.

The Following Selected Information Is from Acme's Annual Report for the Years