|
RONA or the Return On Net Assets
equals the Net Operating Profit After Tax
divided by the sum of cash, the working capital requirement and the
fixed
assets. A strong virtue of using
RONA compared to
traditional methods for measuring company success is that it also
considers the assets a company uses to achieve its output.
Return on Net
Assets is similar to EVA [EVA = (RONA-WACC)
x invested capital].
However using RONA instead of EVA is
generally not recommended, because managers might bypass value-creating
activities because they would reduce RONA (a risk if RONA is greater than
WACC), or they might undertake value-destroying activities because they
would increase RONA (if RONA is less than WACC).
Although Return on
Net Assets (RONA) does not explicitly
measures capital charges, it does remind managers that there is a cost to
acquiring and holding assets. Ultimately maximizing EVA should rather
be seen as the key to financial success then maximizing RONA.
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 - Key Management Ratios -
Compare:
EBIT |
EBITDA |
Economic Value Added |
Earnings Per Share |
Return on Equity |
Net Present Value |
Return On Investment
More valuation methodologies
|
