Neighbour Joe - Return on Assets

Photo by Austin Distel on Unsplash

Hello everyone, today I am going to be calculating a popular ratio used by security analysts when evaluating a company, on my personal finance. The return on assets (ROA) ratio is a quick measurement to show how well the company generate income from its assets. You take the net income and divided by the total assets. My assets were all layout in my latest net worth update post. Let us begin:

Total Assets - $522,845 (As of August 2019)

For the total assets, I did not include my define benefit pension because it will make this calculation very complicated. I contribute to it monthly, but it'll be tough to find out exactly how much monthly income the portfolio is currently generating.

Income (As of August 2019)

TFSA Investment - $3267.33/Year
RESP Investment - $51/Year

Rental Income - $8,880/Year
Rental Expense
Insurance - $588/Year
Property Tax - $1,504/Year
Mortgage Interest - $7,172/Year

Net: $2,934.33

For income, I am strictly focusing on passive income, since employment income is generated by me, and I did not include myself in the total assets.

ROA Ratio: 0.56%

Insights
Not a bad ratio, since TD Bank's latest ROA, is at 0.88%. Anyway, one thing I learned from going through this calculation is that my rental property is actually not generating income for me right now. That's the price you pay for doing 100% debt financing on the house. I am about $300 in the red right now, but it won't stay that way for long, the rent increases every year, and the interest expense decreases every year. In a year time, I should be breaking even and into the positive.

Hopefully, as I continue on this journey, I'll be able to make better use of my assets and start increasing my return on assets ratio.