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

Question

Quizplus · Accepted Answer

Return on total assets measures how efficiently a company is using its resources to generate profits, regardless of the method of financing. Therefore, it makes sense to use profit before finance costs in this calculation, as it allows for a more accurate assessment of the company's operational efficiency. Finance costs are an important consideration for assessing a company's overall profitability, but they are not relevant to the calculation of return on total assets.

Profit Before Finance Costs Is Used in Calculating Return on Total