Return on Net Assets (RONA)
Candlefocus EditorRONA, sometimes referred to as Return on Capital Employed (ROCE), is a key measure used by investors to gauge the efficiency and profitability of a business. While the ratio can provide an overall picture of a company’s profitability, it is important to look further into each component of the calculation - return and assets - to properly assess the performance of the business.
Generally speaking, the higher the RONA, the more effectively the company is using its assets to generate returns. A company with a higher RONA than its competitors indicates it has better management of its assets. A good way to normalize RONA for comparison purposes is to adjust for non-recurring items and special one-time transactions. This makes it easier to compare a company over time or between different companies and to identify trends caused by operational changes or other factors.
Simply put, RONA is a useful tool to uncover and measure how well a company is performing when it comes to generating and keeping profits while utilizing the assets it has. By comparing the RONA of a company with other organizations in the same industry, businesses can gain valuable insight as to how they should manage their own operations to maximize profits. This can be especially useful for small businesses, which often have fewer resources to work with.