Return On Assets

Return on Assets (ROA) tells you how much money the company is able to generate from its total assets. Comparing different companies in the same industry, ROA can tell you which company’s management is more efficient at using its asset to generate returns for shareholders.

It is computed as follows:

Usually companies that utilises more human capital than fixed asset investment generates better ROA. The service sector usually generates higher ROA than the manufacturing sector. We should look at 3 companies with high ROA and discuss why they are able to generate a high ROA.

Silverlake (5CP.SI)

Source: ShareInvestor.com

Silverlake makes software for banks. Banks are careful about whom they select as their IT vendor. Once selected, the relationship is usually a long-term one. Banks being in the business of buying and selling of money are good pay master. This means Silverlake collects its receivables from its banking customers promptly and is able to charge a higher premium for its software due to the relationship it maintains with its banking clients.

Silverlake has an ROA of 36.07% for FY2011.

Sarin (U77.SI)

Source: ShareInvestor.com

Diamonds are a girl’s best friend. As long as there are women in this world, Sarin would do good business. Sarin makes software and devices that measures how pure diamonds are so we know how much they are worth. Sarin sells its product to businesses that makes or sells diamonds. The diamond trade like any other business in the luxury goods business commands a high margin.

Sarin has an ROA of 28.42% for FY2011.

Boardroom (B10.SI)

Source: ShareInvestor.com

Boardroom provides corporate services to companies. This means that companies outsource their accounting function to Boardroom for a fee. Boardroom is sort of like an advisor to companies. We all know good advisors don’t come cheap.

Boardroom has an ROA of 20.34% for FY2011.

Return on Assets at ShareInvestor.com

ShareInvestor.com provides a list of ROA in descending order via this link for subscribers. Below is a screenshot of the list.

Source: ShareInvestor.com