When calculating the rate of return on total assets the interest is added back to profit before tax:
A) because it must be paid regardless of profits.
B) because interest rates are variable over time.
C) to indicate to lenders that some risk is involved.
D) to reflect the fact that the efficient use of resources should be examined independently from the method of financing.

Question

Quizplus · Accepted Answer

The inclusion of interest in the calculation of return on assets reflects the fact that the efficiency of asset utilization should be examined irrespective of the financing method used by the firm. This allows for a more accurate assessment of the firm's performance and its ability to generate profits from its underlying resources.

When Calculating the Rate of Return on Total Assets the Interest