RONA Chart
Metadata
- Name: rona-chart
- Description: Return on Net Assets component analysis
- Triggers: RONA, asset turnover, capital efficiency, asset utilization
Instructions
Analyze Return on Net Assets (RONA) by decomposing into component ratios to identify asset efficiency drivers.
Framework
RONA Equation
RONA = (Net Income / Revenue) × (Revenue / Net Assets)
or
RONA = Net Profit Margin × Asset Turnover
Where:
- Net Profit Margin = Net Income / Revenue
- Asset Turnover = Revenue / Net Assets
Extended RONA Tree
RONA (Net Profit / Total Assets)
│
├── Net Profit Margin
│ ├── Gross Margin (Gross Profit / Revenue)
│ ├── Operating Margin (Operating Profit / Revenue)
│ └── Net Profit Margin (Net Income / Revenue)
└── Asset Turnover
├── Revenue / Net Assets (overall)
├── Fixed Asset Turnover
├── Working Capital Turnover
└── Inventory Turnover
Key Ratios
| Ratio | Formula | Interpretation |
|---|---|---|
| Gross Margin | Gross Profit / Revenue | Production efficiency |
| Operating Margin | Operating Profit / Revenue | Core business efficiency |
| Net Profit Margin | Net Income / Revenue | Overall profitability |
| Asset Turnover | Revenue / Net Assets | Asset productivity |
| Fixed Asset Turnover | Revenue / Fixed Assets | Fixed asset utilization |
| Working Capital Turnover | Revenue / Working Capital | Working capital efficiency |
| Inventory Turnover | COGS / Inventory | Inventory efficiency |
Output Process
- Define scope - What assets to analyze?
- Gather data - Balance sheet, income statement
- Calculate ratios - Multi-year average preferred
- Decompose RONA - Analyze margin and turnover separately
- Identify drivers - What's impacting asset efficiency?
- Benchmark - Compare to industry standards
- Visualize - Waterfall chart or trend line
Output Format
## RONA Analysis: [Company/Business Unit]
### RONA Decomposition
| Component | Year 1 | Year 2 | Year 3 | Trend |
|-----------|--------|--------|--------|--------|
| **Net Profit Margin** | X% | Y% | Z% | ⬆️⬆️⬇️ |
| **Gross Margin** | X% | Y% | Z% | ⬇️⬇️➡️ |
| **Operating Margin** | X% | Y% | Z% | ⬆️➡️⬆️ |
| **Asset Turnover** | Xx | Yx | Zx | ⬆️⬇️⬇️ |
| **RONA** | X% | Y% | Z% | ⬆️⬆️➡️ |
### Asset Efficiency Metrics
| Metric | Value | Benchmark | Assessment |
|--------|-------|------------|-------------|
| Asset Turnover | Xx | 1.5x | ✅ Healthy |
| Working Capital Turnover | Yx | 0.8x | ⚠️ Low |
| Inventory Turnover | Zx | 0.6x | 🔴 Poor |
| Fixed Asset Utilization | X% | Y% | ❌ Below industry |
### Component Analysis
**[Component 1]: Net Profit Margin**
- **Current:** X%
- **Driver:** [What's affecting margin?]
- **Improvement:** [Action needed]
[Repeat for Gross Margin, Operating Margin, Asset Turnover]
---
### Waterfall Chart
Revenue ↓ ┌──────────────────────────┬──────────────────────────────┐ │ $X M (100%) │ ├──────────────────────┴──────────────────────────────┤ │ Gross Margin: 40% │ ├──────────────────────┴──────────────────────────────┤ │ Operating Margin: 25% │ ├──────────────────────┴──────────────────────────────┤ │ Net Profit Margin: 15% │ ├──────────────────────┴──────────────────────────────┤ │ Asset Turnover: 2.0x │ └──────────────────────┴──────────────────────────────┘ ↓ Net Income: $Y M
### Key Insights
1. **[Insight 1]** - [Analysis]
2. **[Insight 2]** - [Analysis]
### Strategic Implications
1. **[Implication 1]** - [Analysis]
2. **[Implication 2]** - [Analysis]
Tips
- Use multi-year averages to smooth volatility
- RONA is more stable than ROE - less affected by debt
- Compare by industry - asset intensity varies widely
- Decompose to identify levers - margin vs. turnover
References
- Various financial analysis textbooks and research papers
- Industry benchmark databases (Damodaran, IBIS World)