Implications

The implications for other performance measures include:

• ROE: Falls. Equity accumulates faster than profits increase.
• ROS: Should at least stay flat, and probably improves.
• Asset turnover: Should at least stay flat, and probably improves.
• Stock price: Stays flat. No dividends. Stock issues dilute stock. EPS stays flat.
• Market cap: Increases, although stock prices stay flat, there are more shares outstanding.
• Cumulative profit: Increases.
• Market share: Stays flat.

ROA pressures management to avoid risk, emphasize efficiency, and to improve incrementally profits.

Privately held companies often emphasize ROA.

Publicly held companies, however, would never use ROA alone for the same reasons they would not use ROS alone. It disappoints stockholders, who see no appreciation in their stock price, and it makes the company a takeover target. It has such an attractive mix of debt and equity that a corporate raider could buy the company using its own debt capacity.