Maximizing Return on Assets

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According to Investopedia, return on assets is an indicator of how profitable a company is relative to its total assets. The simple formula is ROA = Net Income/Total Assets

In the world of interconnect voice, it is an often overlooked metric, but to companies with network assets it can be incredibly important. Retail service providers that have built their own networks (AT&T, Windstream, Frontier, Comcast, etc.) have invested hundreds of millions, if not billions, in building out their voice network infrastructure. This infrastructure is a strategic asset for these carriers. When you look at their profitability based on their assets, if they aren’t offering wholesale voice services then they are reducing the return on their asset.

Here’s just one example:

Take a retail business services provider. Their network is busy primarily Monday through Friday 8am – 8pm. But the network is relatively “quiet” from 8pm-8am. That’s 12 hours where the strategic asset is sitting primarily idle and not generating return to the shareholders. That’s where wholesale voice services can materially increase the ROA, by leveraging the quiet infrastructure and making it available the interconnect voice carrier marketplace. In doing so, they can generate significant top-line revenue growth and contribution margins that impact their profitability. In fact, this is a strong rationale for retail service providers, particularly business providers, to continue to invest in, and participate in, the interconnect voice market.

If you think about it, organizations are given assets, such as, cash, infrastructure, brands, patents, people etc. Maximizing the return on those assets are the metric by which management teams can easily be measured. If AT&T’s voice assets are $10 billion dollars, then AT&T’s management team should be measured by how much profit they generate based on the assets they are charged with managing. It’s like Amazon. Amazon started selling books and realized they had an incredible ecommerce platform and logistics management asset and now they are one of the biggest companies in the world.

The goals of all management teams of any organization should be:

a) Maximizing return on assets
b) Maximizing returns on future investments.

ROA & ROI. That’s it. Everything else is noise.

In voice, if you aren’t doing wholesale voice, you are not maximizing your return on assets. So, all those folks who say wholesale voice is dead, or a waste of time, don’t know what they are talking about and are doing a disservice to their shareholders.

Andrea RonaComment