Sample interview questions: Can you explain the concept of return on net assets (RONA) and its significance in financial decision-making?
Sample answer:
Concept of Return on Net Assets (RONA)
RONA measures the efficiency of a company’s asset utilization, indicating the amount of profit generated per dollar of net assets. It is calculated as:
RONA = (Net income - Interest expense) / Average net assets
Significance in Financial Decision-Making
RONA plays a crucial role in financial decision-making due to its multifaceted insights:
- Asset Management Efficiency: It evaluates the company’s ability to convert invested assets into profits. A high RONA signifies effective asset utilization and vice versa.
- Profitability Comparison: RONA enables comparisons between companies of different sizes and industries, providing a standardized measure of profitability.
- Investment Returns: Investors use RONA to assess the potential return on their investments and ident… Read full answer