Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Return on Net Assets (RONA)

What it is:

Return on net assets is a metric which measures a company's financial performance with regard to fixed assets combined with working capital.

How it works (Example):

Return on net assets (RONA) is calculated by dividing a company's net income in a given period by the total value of both its fixed assets and its working capital. Increases in RONA indicate higher levels of profitability. 

RONA = Net Income / (Fixed Assets + Working Capital)

For example, suppose that company XYZ owns, in a given period, $500k in fixed assets accompanied by $300k in working capital. In the same period, XYZ generates $200k in net income. XYZ's RONA would be calculated in the following way:

RONA = $200,000 net income / ($500,000 A Fixed + $300,000 C Working)
= $200,000 net income / $800,000 A Fixed and C Working
= 0.25 or 25%

In this instance, XYZ generated a 25% return on its working capital combined with its fixed assets.

Why it Matters:

The RONA calculation is similar to that of the return on assets (ROA) metric. Unlike ROA, RONA takes a company’s associated liabilities into account.

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