Please provide explanation to your choice In its annual report to shareholders,

Question

Please provide explanation to your choice

In its annual report to shareholders, the Leaf Company of Sweden reported the following financial results in Swedish Krona (fee): Sales increased from 117,738 million kr in Year 1 to 141,972 million kr in Year 2. Net income increased from negative 10,844 million kr in Year 1 to 20.024 million kr in Year 2. Total assets increased from 182,372 million kr in Year 1 to 183,040 million kr in Year 2. Shareholders' eguity increased from 60,481 million kr in Year 1 to 78,299 million kr in Year 2. Which one of the following is a possible explanation for the financial results of Leaf Company from Year 1 to Year 2? An increase in assets caused the company to earn more revenue which caused an increase in profit. An increase in sales revenue caused an increase in net income which caused shareholders' equity to increase. An increase in net income caused sales revenue to increase which in turn generated additional cash flow for the company. An increase in shareholders' eguity created more invested capital which caused sales and net income to increase.

Explanation / Answer

Correct Answer is D. An increase in shareholder's equity created more invested capital which caused sales and net income to increase

Explanation:

From the above given information, it is clear that in Year 1 company did not had sufficient fund to increase the investment in capital assets. In Year 2 once the Shareholder's equity is increase, company have the enough amount to invest in capital assets resulting in increase in sales and net income.

Due to increase in Shareholder's Equity, company get more amount to improve and invest in capital assets.

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