Asked by Brittney Freeman on May 01, 2024
Verified
Which of the following is true regarding the calculation of return on total assets
A) the numerator of the ratio consists of net income plus interest expense times one minus the tax rate.
B) the numerator of the ratio consists only of net income.
C) the numerator of the ratio consists of net income plus interest expense times the tax rate.
D) the denominator of the ratio consists of the balance of total assets at the end of the period under consideration.
Return on Assets
A financial ratio that measures the profitability of a company in relation to its total assets.
- Acquire an understanding of the notion of financial leverage and its influence on return on equity.
Verified Answer
SP
Shilvi PatelMay 01, 2024
Final Answer :
A
Explanation :
The correct calculation for return on total assets includes adding back the interest expense (net of tax) to net income, which is represented by net income plus interest expense times one minus the tax rate.
Learning Objectives
- Acquire an understanding of the notion of financial leverage and its influence on return on equity.