Return On Net Assets
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Return On Net Assets |
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RONA |
Measuring Company Success: Summary of Return On Net Assets - RONA. Abstract |
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Return On Net Assets (RONA) 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.
It 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 it 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:
Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide Book: Ciaran Walsh - Key Management Ratios
T I P : Here you can discuss and learn a lot more about measuring company success and Return On Net Assets. Compare: EBIT | EBITDA | Economic Value Added | Earnings Per Share | Return on Equity | Net Present Value | Return On Investment |
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