It stands for return on normative equity; a version of return on equity (ROE) in which normative equity is used as a denominator. It is a profitability measure that indicates how efficiently a firm did invest and manage its normative equity, i.e., that type of considered at or within standard level(s) as per specific norms (such as Basel III). Return on normative equity (RONE) is calculated by relating net income (NI) to normative equity:
RONE = net income/ normative equity
Return on normative equity determines the return on an entity’s average normative equity allocated to its business and operations.
Normative equity can be measured using bases such as book value (BV) or fair value (economic capital).
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