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In case of Net profit margin should both the answer ie 8.9 & 11.1 have to be written? Also in case is ROA what amount is used in the numerator can you please explain it Can we use ROA = Net Profit/ Total Assets? If yes do what note should I write for it?
Answers (3)
Net profit margin of 8.9% is fine but the second formula is a mistake in the book. It should have been EBT(1-T)/Sales. EBIT(1-T)/Sales is valid when there is no interest portion included in it. For ROA, it should be EBIT(1-T)/Assets because here we are taking the total return on assets after tax.
Madhuri Veluri
Net profit margin of 8.9% is fine but the second formula is a mistake in the book. It should have been EBT(1-T)/Sales. EBIT(1-T)/Sales is valid when there is no interest portion included in it. For ROA, it should be EBIT(1-T)/Assets because here we are taking the total return on assets after tax.
For ROA which formula is more preferable NP/Total Assets or EBIT(1-T)/ ASSETS ? When to use each of the above?
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