Compute return on net operating assets and explain how the level of leverage interacts with it in helping determine which alternative management should pursue.

The return on net operating assets is an indicator of the efficiency with which an organization uses its assets in order to generate revenue. The return on net operating assets (RONOA) is calculated as a percent by multiplying the company’s net operating profit by its net operating asset total.

A higher RONOA ratio indicates the organization is using its assets to produce profits more efficiently, whereas a smaller ratio implies that current strategies do not yield desired results. Levels of leverage are also important in determining the best alternative for management, since they affect the level of risk that is associated with potential investments and decisions. Firms with high debt levels are generally more risky and will have lower returns. This is why managers should take into account these factors before making any investment decisions.