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#

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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#

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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#

RatioFormulaInterpretationGross MarginGross Profit / RevenueProduction efficiencyOperating MarginOperating Profit / RevenueCore business efficiencyNet Profit MarginNet Income / RevenueOverall profitabilityAsset TurnoverRevenue / Net AssetsAsset productivityFixed Asset TurnoverRevenue / Fixed AssetsFixed asset utilizationWorking Capital TurnoverRevenue / Working CapitalWorking capital efficiencyInventory TurnoverCOGS / InventoryInventory efficiency

Output Process#

1. Define scope - What assets to analyze?
2. Gather data - Balance sheet, income statement
3. Calculate ratios - Multi-year average preferred
4. Decompose RONA - Analyze margin and turnover separately
5. Identify drivers - What's impacting asset efficiency?
6. Benchmark - Compare to industry standards
7. Visualize - Waterfall chart or trend line

Output Format#

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## 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]

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### Waterfall Chart

Revenue ↓ ┌──────────────────────────┬──────────────────────────────┐ │ $X M (100%) │ ├──────────────────────┴──────────────────────────────┤ │ Gross Margin: 40% │ ├──────────────────────┴──────────────────────────────┤ │ Operating Margin: 25% │ ├──────────────────────┴──────────────────────────────┤ │ Net Profit Margin: 15% │ ├──────────────────────┴──────────────────────────────┤ │ Asset Turnover: 2.0x │ └──────────────────────┴──────────────────────────────┘ ↓ Net Income: $Y M

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### 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)