Question

Over the past year, a firm's net income has decreased while its average total assets have remained constant. This means that the firm's

A. return on assets has increased.
B. return on assets has decreased.
C. asset turnover ratio has increased.
D. asset turnover ratio has decreased.

Answer 1

When a firm's net income decreases while its average total assets remain constant, it means that the firm's return on assets (ROA) has decreased.

Step-by-step explanation:

When a firm's net income decreases while its average total assets remain constant, it means that the firm's return on assets (ROA) has decreased.

ROA is calculated by dividing net income by average total assets, and it measures how efficiently a company uses its assets to generate profits. A decrease in net income with constant total assets indicates that the firm is generating less profit per unit of assets, leading to a lower ROA.

In this case, the answer is B. return on assets has decreased.