Question

Steadily increasing income from operations means that a company is growing its revenues but not controlling its​ costs, which usually signals expansion and growth in the​ business's value in future years. TRUE OR FALSE??

Answer 1

False.

1. At the time of increasing income from operations, company must have to increase it's revenue but also they have to control their operational expenditure as well . Otherwise income from operation never been increased .

2. Operating income increases when company's revenue from regular source of business activities increase and associated operational expenses decreases .So it must require operational cost controlling, it means here, direct and operating expenditures must have to be controlled.

3. Operating income = Net revenue - COGS - operating expenses. So only increase in sales and revenues does not increase operating income. Side by side cost control or optimization of operating expenditures is also required.

4. The statement is partially right because operating income allows the company to grow in future, increasing their business volume by opening branches in different locations and setting up new factories for new line of products. But all these are capital expenditure and only allowed to be incurred ,when company has substantial operating income not only supported by high volume of revenue from operations but most importantly reduction of operating cost by cost controlling measures.