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What Is Expected Return on Assets?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 November 2016
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    2003-2016
    Conjecture Corporation
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Sometimes known as anticipated return on assets, expected return on assets is a projection of the amount of net profits that can reasonably be expected from some type of investment or business activity. The purpose of this type of projection is to allow the parties involved to determine if the returns are within a range they deem acceptable. If so, then the activity can continue and hopefully result in returns that are at least equal to the projection. Should the parties feel the expected return on assets is not sufficient to merit the time and resources required, they can decide to not pursue the opportunity and look for a different investment.

Developing an expected return on assets involves making use of a wide range of relevant data to accurately forecast the return on investment (ROI) that can reasonably be anticipated during an upcoming time frame. Typically, this involves assessing the costs involved with the activity and weighing those costs against the potential for returns. That potential for returns is often developed based on a combination of historical data, properly assessing the current status of the marketplace, and taking into account what is most likely to happen in the marketplace in the future. From this perspective, the expected return on assets is not a projection that is based onlyl in hope, but one that is grounded in the proper application of reliable information.

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Both individuals make use of the expected return on assets as a way of determining if it is economically feasible to enter into a venture of some sort, or even to continue a venture that is already in progress. For individual investors, this concept can be applied to the decision to purchase or to continue holding certain stocks or other assets, based on a reasonable projection of future performance and the amount of returns that are likely to be realized. Venture capitalists can weigh the costs of supporting a new venture against the risk associated with that venture, then determine if the anticipated returns are worth the time and resources. Even companies that wish to launch internal projects will want to calculate the expected rate of return to get some idea of how quickly the project can reasonably be anticipated to generate enough revenue to justify the effort.

While the expected return on assets is a projection, taking the time to calculate this potential return is very important. Without doing so, acquiring investors in a new venture can be extremely difficult. Along with preparing this type of anticipated return, it is also crucial to provide background on how the projection was determined, including all the data that was considered as part of the process. At its best, the expected return on assets can help investors and companies avoid getting involved with projects that are ultimately not very profitable, and aid in committing resources to activities that will eventually provide significant returns.

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