Return On Net Assets (RONA)

Return On Net Assets (RONA) is a comparison of net income versus net assets. This metric of company financial performance takes into account earnings with regard to fixed assets and net working capital.

Return On Net Assets (RONA)

Return On Net Assets (RONA) is a comparison of net income versus net assets. This metric of company financial performance takes into account earnings with regard to fixed assets and net working capital.

 


Return On Net Assets Formula

The Return On Net Assets (RONA) is calculated by dividing the company's net income by the sum of its fixed assets and net working capital.

   Return on Net Assets formula: Net Income / (Fixed Assets + Net Working Capital)

Net income, or profit after tax, can be found on the income statement. Fixed assets, including property, plant and equipment, long term investments, and other non-current assets, can be found on the balance sheet. Net working capital is defined as current assets minus current liabilities.



Interpretation of Return On Net Assets

There are no fixed standards or benchmarks for Return On Net Assets, however the higher this ratio is the better. Higher RONA means that the company is using its assets and working capital efficiently and effectively. An increasing RONA is an indicator of improving profitability and improving financial performance.

Return On Net Assets should usually be used in capital-intensive industries where major purchases are for fixed assets. It should be used in subsequent years to see how effective the investment in new fixed assets has been.


Related Terms