GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Return on total assets ratio is equal to ____ divided by total asset
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Current assets
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Current liabilities
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Earning per share
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Net income before preference dividend and interest paid
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Explanation:
Detailed explanation-1: -Although there are multiple formulas, return on assets (ROA) is usually calculated by dividing a company’s net income by the average total assets. Average total assets can be calculated by adding the prior period’s ending total assets to the current period’s ending total assets and dividing the result by two.
Detailed explanation-2: -Return on Assets Formula = EBIT / Average Total Assets I advise considering EBIT as this term is before interest and taxes (pre-debt and pre-equity). Likewise, when comparing it with the denominator, i.e., Total Assets, we are taking care of both the Equity and Debtholders.
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