Why is interest added back to profit before tax when calculating return on total assets?
A) because the efficient use of resources should be examined independently from the method of financing
B) to indicate to lenders that some risk is involved
C) because interest rates vary over time
D) A and B

Question

Quizplus · Accepted Answer

Return on total assets is a measure of a company's ability to generate profits from its assets, independent of the financing method. The efficient use of resources should be examined independently from the method of financing, and adding back interest expense helps achieve this.

Why Is Interest Added Back to Profit Before Tax When