Problem - Return on assets analysis
In January 2004, the Status Quo Company was formed. Total assets were $547,000, of which $381,000 consisted of depreciable fixed assets. Status Quo uses straight-line depreciation of $38,100 per year, and in 2004 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been $57,000 per year for each of the last 10 years. Other assets have not changed since 2004.
a. Compute return on assets at year-end for 2004, 2006, 2009, 2011, and 2013.
b. To what do you attribute the phenomenon shown in part a?
Increase in market share
Annual depreciation charges
Increase in current assets
c. Now assume income increased by 10 percent each year. What effect would this have on your answers to part a?