Dear all,
to my understanding
EBIT = Op. result + Interest income (where Op. result = Gross profit - Op. expenses)
and
EBT = EBIT - Gross interest expense
hence
EBT = Op. result - (Gross interest expense - Interest income) = Op. result - Net interest expense.
Here now my question:
If NI = Tax rate * EBT = Tax rate * (Op. result - Net interest expense), why is Schweser Notes (Module 24.3) adding back gross (not net?) interest expense in
ROA = NI + Gross interest expense * (1-tax rate) * 1/Av. total assets.
Or in other words, why not also subtracting after-tax interest income in the numerator?
I hope I have expressed myself not in a too confusing manner.