Profit before finance costs is used in calculating return on total assets because:
A) interest rates are hard to predict.
B) it is simpler to calculate than profit after deducting finance costs.
C) the efficient use of resources should be examined independently of the method of financing.
D) interest is a tax deduction for a company.

Question

Quizplus · Accepted Answer

The efficient use of resources should be examined independently of the method of financing. By calculating profit before finance costs, it allows for a clear examination of the company's efficiency in generating profits from its assets, regardless of how those assets are financed. Interest rates and tax deductions may have an impact on a company's financial performance, but they should be examined separately from the overall efficiency of asset utilization.

Profit Before Finance Costs Is Used in Calculating Return on Total