Rona Chart

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name: rona-chart description: "Decompose Return on Net Assets into component ratios. Use for asset efficiency analysis, capital structure review, and business model comparison."

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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

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

## 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)

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