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Calculating ROA and ROE in simplest form

  • 1.  Calculating ROA and ROE in simplest form

    Posted 05-09-2019 05:17 PM
    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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