The Smarter Path to Financial Returns

The PSA Blog

Helpful news, tips and business advice for small to medium business owners about how to maximise profit, minimise waste and grow and protect your business.

Learn how to evaluate the return from an asset with PSA Capital Investments.

Evaluating the Return from an Asset 101

Investing in assets is a crucial part of growing your business, but how do you know if, or when, it’s worth the leap? At PSA Capital Investments, we understand that it’s not just about having the funds to buy assets, but making sure they’re the right ones to grow your business. Let’s dive into how you can accurately and effectively assess the return from an asset.

Understanding the Payback Period

First up, let’s talk about the payback period. This is all about figuring out how long it takes to recoup the cost of your investment. In simpler terms, it’s when your investment starts paying for itself. The quicker the payback, the more attractive the investment. Here’s the formula: divide the initial investment cost by the average annual cash flow the asset brings in.

Is a Shorter Payback Always Better?

Generally, yes. A shorter payback period means you’re getting your investment back faster, reducing the risk. But remember, it’s not just about speed. You’ve got to consider the long-term value of the asset too.

Evaluating the Return on Asset (ROA)

Another way to look at it is through the Return on Assets (ROA). This measures how effectively a company uses its assets to make a profit. A higher ROA percentage means you’re succeeding in turning assets into profits.

Crunching the Numbers

To calculate ROA, you divide the net income by the average total assets. It’s a great way to see how efficient your asset management is.

Is Buying an Asset Worthwhile?

That’s the million-dollar question. When you’re considering a new asset, weigh up the potential returns against the costs. Ask yourself:

  • Will this asset increase efficiency or open new revenue streams?
  • How does it stack up against other potential investments?

It’s also not just about the immediate returns. Consider how the asset fits into your long-term strategy and if you’ll need to borrow some money. Will it keep paying off down the track?

Comparing Assets with Other Business Investments

When you’re juggling multiple investment options, you need to compare the assets.

  • Weigh up different assets against each other: How do their ROAs and payback periods stack up?
  • Balance risk and return: Higher returns often come with higher risks. Find your sweet spot.

Financing Solutions for Your Business Needs

We’re all about helping you make informed decisions about where to invest and how to grow your business. Evaluating the return from an asset is a vital step in making smart, informed investment decisions for your business. From understanding the payback period to calculating the Return on Assets (ROA), each aspect plays a big part in ensuring you’re investing wisely. It’s about balancing the immediate financial gains with long-term strategic value.

Need a Hand with Asset Finance?

If you’re looking to grow your business with the right assets but aren’t quite sure where to start, call us on (03) 9847 7689. At PSA Capital Investments, we’re experts in helping businesses like yours make smart, profitable investments and make your money work harder. Let’s discuss how we can help your business thrive with the right assets.

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PSA’s Director, Peter Marmara-Stewart, is a highly successful business owner and finance professional in Melbourne. As a certified Financial Planner with over 15 years of experience in business finance, accounting, and asset management, he provides clients with unparalleled expertise in asset protection, debt elimination and business restructuring. Call (03) 9847 7689 and see how Peter and the PSA team can help you get on the smarter path to financial returns.