Profitability ratios - Return on Net Assets

Return on Net Assets (RONA) is a measure of financial performance of a company which takes the use of assets into account. 

Note:- The return on Net Assets measures how efficiently a company is using its net assets (its fixed assets and net working income) in order to make a profit. The higher the ratio is, the better the company's performance is thought to be.

Return on Net Assets = Net Profit (After Tax) / Fixed Assets + Working Capital

ILLUSTRATION:-

There is an unaudited financial results for the quarter / half year ended 30, Sept 2010 and Balance Sheet of  BHEL Ltd. :-

From the above information we have following details:-

Net Profit (After Tax) = 11423

Fixed Assets = 41159

Working Capital or Net Current Assets = 120825

Return on Net Assets = Net Profit (After Tax) / Fixed Assets + Working Capital

So, Return on Net Assets = 11423 / 41159 + 120825 = .070 or 7%.

Analysis:-

Return on Net Assets is .070 means, Company is generating Rs. .070 on its every unit of Net Assets or Return is 7% on its Net Assets.