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In: Accounting

DB Post: Explain with numerical examples how to disaggregate RNOA into net operating profitability and net...

DB Post:

Explain with numerical examples how to disaggregate RNOA into net operating profitability and net operating asset turnover.

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Expert Solution

methods of measuring shareholders’ equity. One is the Return on Equity (ROE) which is the measure of shareholders’ equity on a company’s common stocks. It shows how a company skillfully manages its funds to produce maximum interest and growth.
To come up with a company’s ROE, all assets including long term (equipment and capital) and current ones (receivables and cash) are added. Its long term (debts that do not have to be paid within the year) and current (accounts payable and employees’ salaries) liabilities are also added. The total liabilities are then subtracted from the total assets.
Return on Net Operating Assets (RNOA), on the other hand, is the measure of a company’s capability to create profit from each piece of equity. It calculates the amount that a company earns for each dollar that it invests. A company’s net income before tax (profit before tax) is divided by its total assets to come up with its RNOA. It is also known as a profitability or productivity ratio that gives owners an idea of how well their company is doing based on their goals, competitors, and the industry as a whole
Formula for RNOA is profit before tax/total assets
For ROE we have to divide net income with total equity
For RNOA we have to divide net income with total assets
Therefore in order to get net operating assets turnover ratio we have to divide net sales with average of the total assets
We Have to calculate total sales from the net income given in a reverse way
The we have to aplly the above formula to get assets turnover ratio


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