Rona

jewels.p

I remember when I was learning DFS Vic and a few others mentioned a Ratio called RONA that they were struggling with. I have never seen this ratio anywhere in my MAC book is it a ratio I need to learn or is it only for PEV and PCR?

Andy Blyth

I assume that RONA stands for Return on Net Assets, also known as Return on Equity (ROE).

Essentially it is the relationship between profits and share capital (ie. How much profit is earned, and therefore available to pay a dividend, per ordinary share).

Preference share holders aren't concerned with profits particularly as they are paid a fixed amount, so the share capital element of the ratio is based on ordinary shares only.

Similarly, the profit element of the ratio is profit after tax and preference share dividends, as this is the amount available for distribution to ordinary shareholders.

You can probably guess the formula from what I've said already, but here it is anyway, just for clarity:-

ROE (or RONA) = net profit after tax and pref share divs ÷ no of ordinary shares in issue

It can also be calculated to give profits earned per £ of equity, rather than per share (these may not be the same thing if the shares have a nominal value of say £0.50) by replacing the last part of the formula with the nominal value of ordinary shares in issue.

All that said, I don't remember it ever being examinable in AAT............

Hope that helps.

Andy

jewels.p

Thanks for that Andy

AK002

It is in DFS, I remember having to learn it...

jewels.p

AK002 wrote: »

It is in DFS, I remember having to learn it...

No its no AK! Reason I know is when I was trying to learn ratios for DFS and struggling to remember them someone said to wait till I do PEV/PCR/MAC and have to learn RONA.

But I do stand to be corrected if it is in DFS! lol

AK002

Has ok let me check when I get home :-p

AK002

Right i've found it in my PEV/PCR/MAC notes....

Page 133 since you have them...

AK002

OK you're right it's not in the DFS notes..