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Do i need to deduct the depreciation cost from the profit figure to find ROI?
I’ve done some practice for the past few weeks and questions including ROI. And the different questions have different ways to finding the profit.
1) Profit – depreciation / net book value
2) profit / gross book value
3) profit / net book value
Which way should I use?
I would like to know too as am equally confused on which one to use.
I’ve figured it out. You should always use the profit less depreciation, (which is known as operating profit).
As for the asset base, the question will specify at which time of the year the company values its asset base. If it’s at the beginning of the year, make sure not to include depreciation. If it’s at mid year, divide the depreciation amount by 2.
Also, you should still use operating profit regardless of when the asset base is valued.
Hope I’m correct!
Depreciation is always an expense in arriving at the profit!!!
(In future if you want me to answer then you should ask in the Ask the Tutor Forum. This forum is for students to help each other 🙂 )