A firm computes ROA, profit margin for ROA, and total assets turnover for each segment using the segment disclosures.The amounts for these ratios computed at a segment level differ from those at a corporate level for which of the following reason(s)?
A)The numerator of ROA at a firm-wide level includes all revenues and expenses except interest expense net of taxes, whereas the numerator of ROA using the segment data includes operating revenues and expenses only.
B)The denominator of ROA at a firm-wide level is the average of assets at the beginning and end of the year, whereas total assets at the end of the year are used in computing segment ROAs.
C)The denominator of ROA at a firm-wide level is the total assets at the end of the year, whereas the average of assets at the beginning and end of the year, are used in computing segment ROAs.
D)choices a and b
E)choices a and c

Question

Quizplus · Accepted Answer

The differences in the computation of ROA at the firm-wide level versus the segment level can be attributed to both the numerator and denominator of the ratio. Choice A is correct because at the firm-wide level, ROA includes all revenues and expenses except interest expense net of taxes, while at the segment level, it includes only operating revenues and expenses. Choice B is correct because the firm-wide ROA calculation typically uses the average of assets at the beginning and end of the year, whereas segment ROAs might use total assets at the end of the year. Choices C and E are incorrect because they suggest the opposite of the standard practice for computing ROA at the firm-wide level versus the segment level.

A Firm Computes ROA, Profit Margin for ROA, and Total