What is the difference between the traditional ROA measure (part of the traditional DuPont analysis) and...

What is the difference between the traditional ROA measure (part of the traditional DuPont analysis) and the return on net operating assets (RNOA)?

Expert Solution

The formula for traditional Return on Assets(ROA) =Net Income /Total Assets and the formula for Return on net operating assets =Net Income/Operating Assets.In the former measure the return or net income is divided by all the assets of the firm.There is no segregation as to operating and non operating assets of the firm.Operating assets of the firm are assets that are integral part of the operations of the firm they maybe long term like plant and equipment and short term assets like cash , receivables etc.Non operating assets on the other hand are assets like marketable securities that are not part of daily operations and are held as investments..In the case of RNOA the return is computed on net operating assets , this will give an indication of how well the management is utilizing its operating assets for revenue generation.This seggregation is absent in ROA.This is the key difference between Return on Assets (ROA) and return on net operating assets (RNOA).

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