Which of the following best describes the return on assets ratio?
A)Net income + interest expense) ÷ total assets
B)[Net income + interest expense × 1 - tax rate))] ÷ average total assets
C)[Net income + interest expense × tax rate)] ÷ average total assets
D)Net income + interest expense + income tax expense) ÷ total assets

Question

Quizplus · Accepted Answer

The return on assets (ROA) ratio is a profitability ratio that shows how efficiently a company is using its assets to generate earnings. This ratio is calculated by dividing the earnings before interest and taxes (EBIT) by the average total assets. Option B is the correct formula to calculate the ROA ratio, as it adjusts the net income by subtracting the taxes paid on the income before dividing it by the average total assets. Options A, C, and D do not consider the tax impact on the profitability of the company.

Which of the Following Best Describes the Return on Assets