rona-chart

# 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)