Which of the following is true regarding the calculation of return on total assets?
A) The numerator of the ratio consists only of net income.
B) The denominator of the ratio consists of the balance of total assets at the end of the period under consideration.
C) The numerator of the ratio consists of net income plus interest expense multiplied by the tax rate.
D) The numerator of the ratio consists of net income plus interest expense multiplied by one minus the tax rate.

Question

Quizplus · Accepted Answer

The correct calculation for return on total assets (ROTA) includes in the numerator net income plus interest expense after adjusting for taxes (i.e., multiplied by one minus the tax rate). This adjustment is made because interest expense is tax-deductible, and adding it back (after adjusting for taxes) provides a clearer picture of the company's operational efficiency in utilizing its assets to generate earnings.

Which of the Following Is True Regarding the Calculation of Return