A firm has an ROE of 4%, a debt/equity ratio of 0.4, a tax rate of 35%, and pays an interest rate of 5% on its debt. What is its operating ROA? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Solution Operating ROA is calculated just like Return on Assets but uses Earnings Before Interest and Taxes (EBIT) instead on Net Income. Debt equity ratio is 0.4 , so debt is 0.4/1.4 = 28.57% and equity is 1/1.4 = 71.43%. ROA = ((% equity/% asset) × (ROE/(1-tax)) + ((%debt/%asset)* interest in debt)) =(1/1.4)×4%/0.65)) +((0.4/1.4)*5%)) = 4.4% +1.43% =5.83%.