Ratios

[sachin_patel]

what is right for below ratio
ROA : [NI+interest(1-t)] / Avg assets or NI / avg assets?
Financial leverage: E/A or A/E ?
Thanks in advance.
I’ve seen both ways in some of the examples .. don’t remember right now if it was Elans or CFAI

 

[Galli]

ROA = Net Income / Average assets
Financial Leverage = A / E

 

[sachin_patel]

Thanks!

 

[cfa_mixer]

a way that I use to remember some of these ratios is the good ol du-pont breakdown of ROE.
npm = income / sales
tato = sales / assets
fin lev = assets / equity

 

[S2000magician]

CFA Institute gives you both formulae.
If they ask you to calculate it, they’ll have to tell you which formula to use. In the absense of clear direction, I wouldn’t include interest net of taxes.

 

[Galli]

S2000magician wrote:
CFA Institute gives you both formulae.
If they ask you to calculate it, they’ll have to tell you which formula to use. In the absense of clear direction, I wouldn’t include interest net of taxes.

Wouldn’t recommend adding back interest net of taxes or you would exclude interest in the NI calc?

 

[S2000magician]

Galli wrote:

S2000magician wrote:CFA Institute gives you both formulae.
If they ask you to calculate it, they’ll have to tell you which formula to use. In the absense of clear direction, I wouldn’t include interest net of taxes.

Wouldn’t recommend adding back interest net of taxes or you would exclude interest in the NI calc?

I wouldn’t add back interest net of taxes.
(But then again, I’m pretty lazy.)

 

[sachin_patel]

Ok thanks.. I must have seen the formula with interest in one of the example.. however I don’t think there was any hint..