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Return on assets is computed as

  • A.net profit divided by owners' equity
  • B.revenue divided by total assets
  • C.operating profit divided by revenue
  • D.net profit divided by total assets

Answer: D

Correct answer: net profit divided by total assets

Return on assets asks what the whole capital employed earned, irrespective of who supplied it, so it measures operating performance without regard to financing. Return on equity is the corresponding figure for the owners alone, and the gap between the two is what gearing produces.

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