ROCE v RONA

A-Vic

I know age old thread question but again now doing mac am confused which is which can anyone tell me what they are please

Thanks in advance


Vic

SandyHood

They basically the same answer to the question:
How much profit is the business making from the investment?

The formula for the calculation is slightly different, but most of the marks are for the understanding.

Return = Operating Profit (that is the R in ROCE or RONA)

Capital Employed CE is often described as the Shareholders' funds + Long-term borrowings, this is the same value as the Fixed Assets + Net Current Assets or the Total Assets less Current Liabilities. So you can find the value in a number of ways from the Statement of Financial Position (or Balance Sheet).
Typically MAC papers don't give a full blown balance sheet, so if you are looking for the capital employed then expect to use Total Assets less Current Liabilities.

Net Assets(NA) is the same as the Capital Employed except for long-term borrowings. So it is typically Total Assets less Total Liabilities.

Hopefully, that shows that whether you are asked for RONA or for ROCE it doesn't make a lot of difference.

Questions will typically compare the RO?? of one division or company with another. This use of the same ratio puts the two ratios on a level playing field.

ROCE

Operating Profit x 100 mmmmmmmmmmmmm= ROCE

mmmTotal assets less current liabilities

RONA

Operating Profit x 100 mmmmmmmmmmmmm= RONA

mmmTotal assets less total liabilities

A-Vic

Thanks Sandy