This is an advanced guide on how to calculate Return on Net Assets Ratio (RONA) with thorough interpretation, analysis, and example. You will learn how to use its formula to assess a company's profitability.
The return on net assets ratio (RONA) is a financial performance measure that shows a comparison of a firm's net income to its net assets.
Generally, a higher result indicates that a company is making good use of its working capital and fixed assets to generate income and thus implies a higher profitability.
On the other hand, a low return on net assets ratio implies that the company and its management are not deploying the assets of a business in a valuable way.
This would be a cause for concern for a lot of investors who consider RONA as a vital metric in evaluating a company.
Fixed assets are typically one of the largest components of a business and converting them into revenue is important in developing an idea of a company's future and its ability to perform.[Click to continue]
This is a thorough guide on how to calculate Cash Return on Assets Ratio (Cash ROA) with in-depth analysis, interpretation, and example. You will learn how to use its formula to assess a business profitability.
The cash return on assets ratio, also known as the cash ROA ratio, is the ratio of a company's operating cash flow and its average total assets.
This profitability ratio shows you a clear picture of how well the company is generating cash flows from its assets.
In a nutshell, it measures how much the firm’s invested assets are making, against the actual cash it is collecting.
While net income is usually used to measure the profitability of a company, it’s more important to evaluate how the cash comes into and goes out of the business.
The cash return on assets ratio can help you assess the actual cash flows to the firm’s assets, and it’s not affected by any income measurements or income recognition.
This ratio can also be used to compare a company’s operating performance with other companies in the same industry.
In general, a higher cash ROA ratio indicates that the company is doing better at generating cash flows from its assets.
Conversely, a lower ratio shows that the company is not efficient in utilizing its assets to generate more cash flows.[Click to continue]