Question

Declining income from operations indicates a slowdown in business activity.

True

False

Answer 1

Answer:

False

Explanation:

The income from operations primarily would decline due to below reasons:

• Lower Net Income or
• Increased costs

Lower Net Income can also be attributed to two main reasons:

• Less selling price; or
• Sale of less number of units

There can be instances where the company has actually reduced the selling price per unit while dealing in more sales activity (i.e.. large quantities). This may result in declining income from operations but does not necessarily mean a slowdown in business activity.

So, effectively, it can be said that declining income from operations does not always mean that there is a slowdown in business activities.

In case of any doubt or clarification, feel free to come back via comments.