In the most recent year, the Decadent Hotel earned $220,000 of profit before tax, after the deduction of $40,000 in interest expense. The Hotel's liabilities are $800,000 and its owner's equity is $1,200,000. What is the hotel's return on total assets, before interest and tax?

Question

Quizplus · Accepted Answer

The return on total assets (ROTA) before interest and tax is calculated by adding back the interest expense to the profit before tax, and then dividing by the total assets. The total assets are the sum of liabilities and owner's equity, which is $800,000 + $1,200,000 = $2,000,000. The profit before interest and tax is $220,000 + $40,000 = $260,000. Therefore, ROTA = ($260,000 / $2,000,000) * 100 = 13%.

In the Most Recent Year, the Decadent Hotel Earned $220,000