Hello everyone,
I need some help with calculating return on assets and return on equity from CMA part 2.
formula in the book for ROA shows
ROA = Net Income/Avg. Total Assets
ROE = Net Income/ Avg. Total Equity
ROCE = (Net Income - preferred dividend)/ Avg. total common equity
and times interest earned is earning before interest and taxes (EBIT) / interest expense
I'll put pictures of 2 different solutions of these formulas used 2 different way and I need to know what to use for the exam.
example in middle of the chapter shows solution with these formulas
but practice essay answers use different formula
the essay answers add interest expense for ROA and times interest earned calculation and not for ROE.
sorry for long question but I need to understand this thing.
thank you
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Jenish Desai
Student
Stephenville TX
United States
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