Profit Before Finance Costs Is Used in Calculating Return on Total

question 33

Multiple Choice

Profit before finance costs is used in calculating return on total assets because:

• A) the efficient use of resources should be examined independently of the method of financing.
• B) it is simpler to calculate than profit after deducting finance costs.
• C) interest rates are hard to predict.
• D) interest is a tax deduction for a company.

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Definitions:

Operating Activity

Business functions related to producing goods or services, which are reflected in the company's cash flow from operations.

Investing Activity

Investing activity refers to the purchase or sale of long-term assets and investments, reflecting a company’s spending on acquiring and disposing of long-term assets.

Financing Activity

Transactions involving the flow of cash between a company and its owners, investors, or creditors, excluding operational and investing activities.

Statement of Cash Flows

A ledger statement which outlines how modifications in balance sheet accounts and revenue streams influence cash and cash equivalents, with the analysis broken down by operating, investing, and financing operations.