What Is Return on Assets Managed (ROAM)

Return on assets managed (ROAM) is a measurement of profits shown as a percentage of the capital that is handled. Return on assets managed is calculated by taking operating profits and dividing it by assets (which could include accounts receivable and inventory). Asset turnover and operating margin are the two main drivers in returns on assets managed.

The formula for ROAM is total income from investments X 100 divided by assets managed.

While ROAM is not as often focused on as more well-known metrics of business, such as Return On Assets (ROA) or Return On Investments (ROI), it, nonetheless, when applied correctly, can be a useful and telling indicator of a business's overall health.

ROA is a great financial performance metric which determines if a company can generate an adequate return on its assets.

Return on Assets Managed - ROAM Explained

On a broad level, ROAM is an all-encompassing financial measure for businesses, reflecting market strategy and giving an investor a window into the company's health. Changes in this measure from year to year show a company's changing ability to generate a profit on the assets under its control.

Another way to calculate this return is asset turnover multiplied by operating profit margin. Some analysts use return on net assets managed, and others use return on total operating assets managed. It is important not to use one metric or variation to compare all companies.

ROAM can vary for companies substantially and will be largely influenced by the industry the company is in. As such, when you are comparing companies using ROAM, it will be most useful to compare it against a company's previous numbers or against a similar company in the same industry, as opposed to a company in an unrelated industry.

ROAM is different than a return on assets (ROA), a more commonly-used term that is used to determine what earnings were generated from invested capital.

Key Takeaways

  • Return on assets managed is a profit measurement expressed as a percentage.
  • Two main drivers in ROAM are asset turnover and operating margin.
  • ROAM reflects market strategy, giving an investor a window into the company's health.
  • It is different from return on assets, which is used to determined earnings generated from invested capital.