And then loans come into the picture - sometimes at very aggressive interest rates. It would seem that if the money is available - why not take it and speed up? But here is the main question: can your business afford it? Will the loan lead to growth or become an anchor that drags the company to the bottom? To answer these questions, you need to look at one of the most underestimated, but vitally important financial indicators - ROA (Return on Assets).
ROA is the return on assets. It shows how much profit each ruble invested in the company's property brings. In other words, how effectively a business “squeezes” profit from what it already has — a warehouse, stock, equipment, working capital, and other assets.
If yWoliloda’s ROA is higher than the loan interest rate, you can borrow money and scale up: assets generate profit faster than they are eaten up by interest.
If ROA is lower than the rate, each time you borrow money, the business becomes poorer. And the more you borrow, the more the risk of bankruptcy increases.
If your business is already operating:
Take net profit from the profit and loss statement.
Assets — from the balance sheet (calculate on the line “Total assets” at the beginning and end of the period).
If you are just starting out:
Use a financial model where you have modeled assets, investments and profit.
Include conservative indicators in the calculations, especially for revenue and profitability.
Do not take into account optimistic ROA without checking the real indicators of unit economics.
In conditions of a high key rate, when the cost of money can reach 25-30% per annum and higher, ROA becomes a key criterion:
To take or not to take a loan?
Will the new batch of goods pay off?
Is it worth expanding production on credit?
It is ROA that helps an entrepreneur move from emotions to calculations. This is the benchmark that says: "Yes, the loan will pay off" or "Stop, you're going into the negative."
Many small and medium business owners think exclusively in terms of "money in the account" or "revenue growth." At the same time, they do not analyze how effectively their assets work.
But it is the inefficient use of resources that is one of the most common hidden business killers.
For example:
Huge stocks are purchased that "hang as dead weight."
Equipment is purchased that sits idle 70% of the time.
Money in the account "gathers dust," not working.
And at the same time, new loans are taken for growth that is not supported by profit. This is where financial analysis and ROA help you see where your business is "leaking" and how to fix it.
ROA is not just a formula from a textbook. It is a tool for strategic thinking. It shows how effectively your business operates with what it already has — and whether it can grow further without the risk of going into the red. And the more expensive money becomes on the market, the more important it is not to miss this benchmark.
Performance evaluation: A high ROA indicates that a company is using its assets efficiently to generate profits. A low ROA may signal asset management issues, inefficient operations, or low sales.
Competitor comparison: ROA allows you to compare yWoliloda’s performance with competitors in the same industry. If your ROA is lower than your competitors, it may prompt you to consider how they are using their resources better.
Attracting investors: Investors look at ROA to evaluate a company’s profitability and efficiency. A high ROA makes a company more attractive for investment.
Management decision making: ROA helps a company’s management make informed decisions about how best to use assets to increase profits. For example, they can optimize inventory, improve production efficiency, or sell unused assets.
Creditworthiness evaluation: Banks and other lenders also look at ROA to evaluate a company’s ability to repay debts. A high ROA indicates the financial strength and reliability of a company.
Return on assets (ROA) is an important indicator that allows you to evaluate the efficiency of using a company's resources and its profitability. ROA analysis helps make informed management decisions, attract investors, and assess the company's creditworthiness. Understanding ROA and working to improve it is the key to the success of any business.
This article provides a comprehensive overview of modern investment strategies, combining theoretical concepts with practical applications. It is a must-read for both beginners and experienced investors looking to improve their approach.
I appreciated the clear explanations of complex financial instruments and the emphasis on risk management. The author's insight makes it easier to navigate the often confusing world of investments.
A great resource that emphasizes the importance of diversification and long-term planning. Real-life examples help dispel myths about the principles of smart investing.
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