Return on Net Assets (RONA) Ratio Analysis

Definition: Return on Net Assets (RONA) is used to measure the financial performance of a company, calculated by taking the net income and dividing it by the quantity of its fixed assets and net working income. The higher the ratio, the better the performance.

Formula:

Return on net assets = Profit after tax / (Fixed assets + net working capital)
Or,
RONA = Net income / Net assets
(Note: Net working capital is defined as current assets minus current liabilities)

Example 1:
Network Ltd. owns $600,000 in total fixed assets accompanied by $400,000 in working capital. In the same period, XYZ generates $350,000 in net income. Then, the RONA would be calculated as follows:
RONA = $350,000 / ($600,000 + $400,000) = 0.35 or 35%

Example 2:
The following information relates to George Ltd:
Fixed assets at book value $200,000
Current assets $150,000
Creditors payable within one year $50,000
Net profit $60,000
Calculate the Return on Net Assets.

Solution:
Net working capital = 150,000 - 50,000 = $100,000
RONA = 60,000 / (200,000 + 100,000) = 0.2 or 20 %

* Next: Return on Investment Ratio Analysis

Author

Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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