ROA formula

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canadiananalyst

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Hi guys,
I’m reviewing ch. 29 and for some reason, roa’s formula on pg. 62 is ebit/beg assets.
I always thought it was ni/ avg assets
I understand that sometimes it varies between beg and avg assets, but why is the numerator equal to EBIT?
Any ideas?
 
ROA = NI/Average Assets.
Anything else is not commonly understood to be ROA.
 
finally, something i can answer.
If you have a FSA formula which has an income statement input and a balance sheet input, you should always use an average b/sheet input. eg Income Statement Item / AVERAGE balance sheet item.
 
@ canadiananalyst
I was looking at the same discrepancy yesterday.
In the FSA book the first page lists all ratios and mentions that these ratio definitions should be used by candidates whenever a ratio is calculated differently.
So, I propose sticking to this list for the exam.
As per the list:
ROA = NI / Avg.Total Assets
 
But I still don’t understand why the book clearly says ROA= EBIT/ Beg. Assets!
Wth is ebit doing there?
 
Well, although its NI/Average Assets, you could use EBIT/Beg Assets, Im not sure why though in what context was it used in the book, please dont give page number cos I really dont want to look
 
canadiananalyst Wrote:
——————————————————-
> But I still don’t understand why the book clearly
> says ROA= EBIT/ Beg. Assets!
>
> Wth is ebit doing there?
CFAI states that, by and large, there are many definitions of ratios around.
I suppose that EBIT / Beg.Assets is one of the alternative definitions of ROA.
I would say do not bother. Stick to the ratios listed on the first page of FSA book.
 
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