ROA/ATO

[Chavi]

For question 1.3.2 - explain how ROA can increase whilst ATO decreases

What did everyone answer?

I wrote something along the lines of worsening sales, but better expense and cost of sales control . . .

[Stormer]

NPR goes up proportionally higher.

[Chavi]

NPR goes up proportionally higher.

Did you have to mention that.. ?

[Stormer]

You have to mention proportionality in some sense. Seeing as ROA = NPR x ATO, i'd say you have to mention NPR relating it to expense control. You don't know that Sales has worsened either.

[Yitzi_K]

I said that expenses decreased, but sales decreased by more. Therefore ROA improves, but ATO decreases.

[AnotherBrickInTheWall]

I said something along the lines of due to sale of assets during the period cos there was that disposal of computer system earlier and selling assets pulls up ROA (net profit / Ave assets) and brings down ATO (Ave assets / Cost of sales)

[Stormer]

I said that expenses decreased, but sales decreased by more. Therefore ROA improves, but ATO decreases.

That's purely hypothetical. Expenses could have increased and Sales Increased by more but Total Assets is much higher. You'd have to mention NPR in some form I feel.

[Chavi]

I said something along the lines of due to sale of assets during the period cos there was that disposal of computer system earlier and selling assets pulls up ROA (net profit / Ave assets) and brings down ATO (Ave assets / Cost of sales)

That's smart.

You have to mention proportionality in some sense. Seeing as ROA = NPR x ATO, i'd say you have to mention NPR relating it to expense control. You don't know that Sales has worsened either.

Right, but as long as you discussed proportionately you'd be fine right? Also because Ave total Assets are in the denominator of both ROA and ATO, the only explanation for a difference in both is opposing fluctuations in sales and Net Profit. Leaving everything in between  - i.e. cost of sales and expenses.

[Stormer]

I said something along the lines of due to sale of assets during the period cos there was that disposal of computer system earlier and selling assets pulls up ROA (net profit / Ave assets) and brings down ATO (Ave assets / Cost of sales)

That's smart.

You have to mention proportionality in some sense. Seeing as ROA = NPR x ATO, i'd say you have to mention NPR relating it to expense control. You don't know that Sales has worsened either.

Right, but as long as you discussed proportionately you'd be fine right? Also because Ave total Assets are in the denominator of both ROA and ATO, the only explanation for a difference in both is opposing fluctuations in sales and Net Profit. Leaving everything in between  - i.e. cost of sales and expenses.

Yup, I don't think you'd be asked to explicitly mention NPR. NPR is Net Profit on Sales though so you'd have to mention either NPR or expense control.

[AnotherBrickInTheWall]

hang on just realised my ato is wrong... stuffed that question

[ks04]

This question got me... the fact that they didn't include the formulas like they have in previous years is what caught me out... :/

[sgeorge]

Well, the business was receiving extra revenue from the aw firm renting, so that pushes up ROA.

[LFTM]

i had no clue, made up some shit.

[becky]

yes i spoke about how the sale of NCA's increases the ROA and somehow related it to sales for the ATO

[Chavi]

yes i spoke about how the sale of NCA's increases the ROA and somehow related it to sales for the ATO

But that won't make sense, as the Sale of NCA would bring up ROA and ATo