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 Return on Net Assets ( RONA )
 Written by Kenny Foo Monday, 09 March 2009 11:07 Investment Formula Description Return on Net Assets ( RONA ) is the investment formula to measure of financial performance of a corporation which take use of assets into account.  Return on Net Assets ( RONA ) can be obtained by dividing net profit with fixed assets and working capital. Some investors confuse return on equity ( ROE ) with return on Net Assets ( RONA ). In fact, both investment formula has a slight difference as following.   Difference between return on equity ( ROE ) and return on net assets ( RONA ) Return on equity ( ROE ) = Net profit / Shareholders' Equity Return on equity ( ROE ) = Net profit / ( Total Assets - Total Liabilities ) Return on equity ( ROE ) = Net profit / (( Fixed Assets + Current Assets ) - ( Long Term Liabilities + Current Liabilities ))  Return on net assets ( RONA ) = Net profit / ( Fixed Assets + Working Capital ) Return on net assets ( RONA ) = Net profit / ( Fixed Assets + ( Current Assets - Current Liabilities )) In this case, the investors can see that long term liabilities is not taken into account for return on net assets ( RONA ). Hence, return on net assets ( RONA ) is same with return on equity ( ROE ) except it didn't take long term liabilities into account.   Investment Formula Return on Net Assets ( RONA ) = Net income ( NI ) or net profit / ( Fixed Assets + Working Capital )   Investment Formula Examples Corporation A has \$125,000 fixed assets, \$75,000 current assets, \$ 12,000 non current liabilities, and \$ 25,000 current liabilities. For this financial year, Corporation A has \$80,000 net profit. The difference between return on net assets ( RONA ) and return on equity ( ROE ) is as following.  Return on net assets ( RONA ) = Net profit / ( Fixed Assets + ( Current Assets - Current Liabilities )) = 80,000 / ( 125,000 + ( 75,000 - 25,000 )) = 80,000 / 175,000 = 0.457 Return on equity ( ROE ) = Net profit / (( Fixed Assets + Current Assets ) - ( Long Term Liabilities + Current Liabilities )) =  80,000 / (( 125,000 + 75,000 ) - ( 12,000 + 25,000 )) = 80,000 / 163,000 = 0.491 For return on net assets ( RONA ) , corporation A has 0.457 while for return on equity ( ROE ), corporation A has 0.491. The difference with counting non-current liabilities for return on equity ( ROE ) and not counting non-current liabilities for return on net assets ( RONA ) make both investment formula to have different outcome for corporation A.  Add this page to your favorite Social Bookmarking websites Last Updated ( Tuesday, 10 March 2009 11:55 )