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Return on net assets definition

Description

Return on net assets is a ratio, very familiar to ROA but not quite as popular. RONA can be described as a ratio that can be used to evaluate company’s strength. Data to calculate this ratio is collected from the balance sheet (assets) and income statement (income). Main difference between ROA and RONA is a letter “N” that means that while calculating RONA, we use net assets instead of total assets (fixed assets + net working capital).

RONA is an important ratio for capital-intensive industries, because it shows how efficiently the fixed assets and NWC is being used. RONA is important to investors as it helps to evaluate how the fixed assets are being used. And investors are interested in fixed assets because very often it is an important part of the company’s assets.

Norms and limitations

There are no fixed standards for RONA.

Although the higher value of the ratio the better the income performance. That means that the company is using net assets efficiently.

Formula

Fixed assets represent assets such as buildings, real estate, equipment and furniture that can be found in balance sheet under the long-term tangible assets.

Net income (net profit, net earnings) usually called “the bottom line” and is a measure which is calculated by taking revenues (sales and other incomes) and adjusting for the cost of sales, operating cost, depreciation and amortization, interest, taxes and other expenses.

Net working capital (working capital, NWC) is calculated by deducting current liabilities (current debts) from current assets.