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
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