Question

Which of the following ratios use de-levered net income?

a. Financial Leverage
b. Return on Equity
c. Return on Assets
d. Asset Turnover
e. Return on Sales

Answer 1

c. Return on Assets

Step-by-step explanation:

The net income usually has an impact of interest expense since interest expense is deducted from earnings before interest and tax in arriving at net income.

Hence, in order to take out the impact interest expense when computing return on assets, an adjusted net income known as de-levered net income is computed using the below formula:

Net Income + (1-t)xInterestExpense