Which of the following statements about the relationship between RNOA and ROCE is correct?

Question

Quizplus · Accepted Answer

ROCE is calculated as (Net Income / Invested Capital) while RNOA is calculated as (Operating Profit / Operating Capital). Since both ROCE and RNOA include net income or operating profit, they will be equal if there is no interest expense. However, if there is interest expense, then ROCE will be higher than RNOA if RNOA is greater than after-tax cost of debt (which is included in the invested capital calculation). Hence, choice D is correct.

Which of the Following Statements About the Relationship Between RNOA