Foragers Plan, page-20

Return on assets (ROA) is one measure of performance, but only suitable for comparing like with like. Return on equity (ROE) is another measure of performance. Debt leverage comes into play when considering this, and hence risk. In theory, one could start an equipment leasing company with near-zero equity, borrow the funds to buy the equipment, and lease them out at an imputed interest rate higher than the cost of the funds borrowed. This would give a huge ROE, and a poor ROA, and from a risk perspective, a huge debt/equity ratio. For the 2-business TGA, the issue does not lend itself to a simplistic Animal-Farm-style mantra, “Higher ROA good, lower ROA bad.”

Superficially, consumer leasing may seem similar to commercial leasing, and hence comparing their respective ROA's valid. However, for legal and other reasons, consumer leasing offers poor collateral, whereas for commercial leasing, the leases themselves can be securitised, and hence most of the funds needed can be borrowed for the latter, and not the former. This is the fundamental reason why more than the two ROAs need to be considered, and I would presume that Forager knows this.

Selling TEF (Thorn Equipment Finance) may not be the no-brainer that a comparison of ROA's suggests. What to dispose of, and what to hold would require a a great deal of analysis, which would include the growth prospects of the units, their risk profiles, et cetera.

I hold some 600,000 TGA, so I would love to see the pros and cons of anyone who has a significant interest in this sell-or-hold-TEF issue.