Strategic Assessment
HOW A BUSINESS PERFORMS IN A FAST-MOVING WORLD

Question #10: Return on Assets (profit margin multiplied by total assets) is the “milestone” by which we measure our continuous success. Return on Assets is how we measure the “wealth” being created in our business.

Caveat: Business leaders often overlook this key performance metric. It is telling you how well management is doing its most important job: making wise choices in allocating resources.

If your ROA is higher than your Cost of Capital, you are creating wealth in your business. If your ROA is lower than your Cost of Capital, then business wealth is being destroyed.

Consider that we have been living in times of low inflation, but inflation momentum is building. In this environment, if you need to counter the move of a newly-emerging competitor, can you see how a higher ROA can buffer you in case of interest-rate fluctuations?