CMA Study Group

ROA ratio

  • 1.  ROA ratio

    Posted 15 days ago
    Hi,
    When we calculate Return on Assets, do we need to add back the interest expenses and tax shield on interest to Net income?
    eg- net income + interest expenses - tax savings

    Thanks,
    Sushma

    Sent from my iPhone


  • 2.  RE: ROA ratio

    Posted 14 days ago
    Hi Sushma,

    The formula to calculate ROA is Net Income/ Average Total Assets.
    So it is Net.  ie, after interest expense and Tax. So you don't have to add it back. 

    Hope this clears

    Thanks & regards,
    Shashi







  • 3.  RE: ROA ratio

    Posted 3 days ago
    Hi, Sushma:

    ROA is used to measure influence between net income and average assets. It surely doesn't include interest expenses and add back tax shield. 
    Net income = operating income - interest - corporate income tax

    Operating income also equals EBIT

    Your Sincerely,
    Ying Li 





  • 4.  RE: ROA ratio

    Posted 2 days ago
    Hi Sushma,

    The ROA is usually calculated as Net Income divided by Average total assets. But in one of the questions on Wiley the answer was calculated by using as the numerator Net Income minus Interest Expense minus the tax shield related to the interest expense.

    So I have the same question as yours.

    Regards,

    ------------------------------
    Hassan Mokh
    Accountant
    Beirut
    Lebanon
    ------------------------------



  • 5.  RE: ROA ratio

    Posted yesterday
    Edit
    Just a small correction please
    Net income plus interest expense minus tax shield

    ------------------------------
    Hassan Mokh
    Accountant
    Beirut
    Lebanon
    ------------------------------