What is Return On Net Assets. Description
RONA or Return On Net Assets is equal to Net
Operating Profit After Tax divided by: cash plus the working capital requirement
plus the fixed assets. A strong virtue of using RONA compared to traditional
methods for measuring company success is that RONA also considers the assets
which a company uses to achieve its output.
Return On Net Assets compared with EVA
Return on Net Assets is similar to EVA [EVA
= (RONA-WACC) x invested capital].
However using RONA instead of EVA is generally not recommended. The reason
for this is that managers might bypass value-creating activities, because
that might reduce RONA. A risk if RONA is greater than WACC. Or they might
undertake value-destroying activities because that would increase RONA. If
RONA is less than WACC.
Although RONA does not explicitly measure capital charges, it does remind
managers that there is a cost to acquiring and holding assets. But ultimately,
maximizing of EVA should rather be seen as the key to financial success than
maximizing of RONA.
Calculation of Return on Net Assets. Formula
Net Sales
- Operating Expenses
------------------------------------------------
Operating Profit (EBIT)
- Taxes
------------------------------------------------
Net Operating Profit After Tax (NOPAT)
/ Net Assets (= cash+working capital requirement+fixed
assets)
------------------------------------------------
Return on Net Assets (RONA)
Book: Steven M.
Bragg - Business Ratios and Formulas : A Comprehensive Guide -
Book: Ciaran Walsh
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Compare with: DuPont Model
| EBIT |
EBITDA |
Economic Value Added |
Earnings Per Share |
Return on Equity |
Net Present Value |
Return On Investment
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