Return on Net Assets (RONA) is one of the financial performance indicators. It is the simplest way to know the profitability with opportunity cost analysis of the company.It is calculated as;
Return on Net Asstes= Net Income / Fixed Assets + Net Working Capital
To calculate Return on Net assets (RONA), only consider tangible assets used in production processes such as machinery and real estate. Net Working capital equals to the company’s current assets deducted its current liabilities. The higher the return indicated the better the performance of the company.
The Pitfall of RONA is that we can’t reply on this single measure. We have to do more performance indicator to analyze the company stability and efficiency.
How is RONA used?
RONA has various business models which are adopted by different companies according to their situation, market and product. Some company adopted RONA for higher sales volume with low return while others adopted for high return with low sales volume. Each company has different purpose which varies by industry to industry and market to market.