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