Asset Growth vs. ROA – Net Worth Ratio

This concept came from a calculator that was readily available on the internet years ago. I would give credit to the original author, but I don’t remember the name. It was made available online by either CUNA or one of the other credit union associations. I have only embellished it with the addition of charts and a little more flexibility.

The concept is simple. Over the next 10 years, your future Return on Assets (ROA) must be sufficient to support your projected asset growth rate, otherwise your net worth ratio will drop, possibly to an unacceptable level. The PCA net worth ratio is measured by dividing the period ending net worth by ending total assets. There a little wiggle room given by the NCUA, such as daily, quarterly, or monthly averaging assets, but I think most credit unions use end of period data.


You start the calculations by entering current assets and current net worth ratio. Then you enter an expected growth rate over the next 10 years and expected ROA over the same period. The Net Worth Floor produces a line on the chart to show the minimum net worth ratio you would accept. The default 7.00% is the lowest PCA net worth ratio you can have and still be considered a “Well Capitalized” credit union.


One thing I added was the ability to enter a series of different assets growth rates and ROA over the 10 year period. If data is enter here, it overrides the above asset growth rate and ROA for those periods.


This table shows the changes in assets and net worth over the 10 year period:


This chart shows a bar chart for the change in assets, a blue line for the change in the net worth ratio, and a straight purple line for your lowest acceptable net worth ratio.


The chart below that shows that even thought the net worth ratio is dropping, net worth in dollar terms would still be rising over the 10 years.


Download workbook “Net_Worth

Don Pistulka
Don Pistulka

Retired Credit Union CFO - Finance
Background: over 40 years in investments, asset/Liability management, banking, securities trader.
Worked for: California Credit Union, WesCorp, CalFed S&L, Crocker Bank, Carroll McEntee, Federal Home Loan Bank Board (D.C.), Western Asset Management, Security Pacific National Bank.

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