# ROA

Based on the information shown below for Pegasus, Inc.:

A. Compute the reported ROA for each portfolio component for 2003 and 2004.

B. Compute the mark to market ROA for each portfolio component.

C. Explain what the data set forth in A and B suggest about investment performance for 2004 compared with 2003 and which is a method of determining ROA is a better measure of the performance of Pegasus's portfolios.

Please see attached.

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#### Solution Preview

ROA is an Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets).

1

Fixed Maturities ROA for the year 2003 is calculated by dividing the Interest income and the realized gains (losses) by the cost of the fixed maturities.

(2,244 +20) 2,264/ 37,984 x 100 = 5.96%

Fixed Maturities ROA for the year 2004 is calculated by dividing the Interest income and the realized gains (losses) by the cost of the fixed maturities.

(2,115- 76) 2,039/ 29582 x 100 = 6.89%

Equity ROA for the year 2003 is calculated by dividing the dividend income and the realized gains by the cost of the equity.

(78+22) 100/1450 x 100 = 6.9%

Equity ROA for the year 2004 is calculated by dividing the dividend income and the ...

#### Solution Summary

ROA is discussed.