The ability to measure performance is essential in setting corporate objectives. Such measurement can be used to develop incentives and in order to control operations towards achieving organisational goals. 

Most managers will be familiar with the term ROI or Return on Investment which is usually based on the returns made (profits) based on Shareholders’ funds (the funds invested in the business plus reserves). This definition is quite complex and requires some understanding of financial statements and their make-up.

FinGenie uses Return on Assets Managed as the key measure of financial performance. What we are doing is breaking the business down into elements which can be easily understood but play a key role in driving the business forward. 

We are wanting to improve profitability, turn assets optimally and in this way drive out better returns. Importantly our measures of performance are aimed at those components of the business that managers have control over.

The numbers within a business are very important as they determine a number of things including whether the business should continue to operate. Examples are:

•    They tell if the business is profitable
•    whether the business is solvent
•    whether the bank will continue to lend
•    whether management earned bonuses
•    affordability of salary increases
•    the taxes payable etc

Despite this many managers don’t use the financials to base their decision making on, because by their own admission they simply don’t understand them. Fingenie aims to solve this problem by breaking the components of the business down into simply understood pieces.

Return on Assets Under Management

ROAM is our overall metric and tells us at a glance how the business is performing overall. ROAM is Net Profit after Tax divided by Total Assets Managed. What is important to know is that our Profitability Measure (ROS) and our Asset turnover or t when multiplied together, will give us ROAM.

ROAM = Net profit after Tax divided by Total Assets Managed
ROS = Profitability Measure = Net Profit After Tax divided by Revenues (Income statement performance)
t= Asset Turnover = Revenues / Total Assets Managed (Balance Sheet)
Ros multiplied by t = Net Profit after Tax / Revenue
t = Revenue/ Total Assets Managed

When Multiplied Out

Net Profit after tax / Total Assets Managed which is equal to ROAM

How Does this help the Business Owner / Manager?

A metric is created which can be measured against other businesses and it allows the business to set a level which they wish to achieve. ROAM is really the benchmark against which the business performance should be measured.