Day two of Dashboard week and for those navigating the superannuation landscape, understanding a fund’s performance is essential. This guide simplifies how to evaluate these funds using crucial financial metrics, essential for anyone from investors to fund managers.

Key Metrics Explained

I use five financial metrics to assess superannuation funds: Net Asset Score (NAS), Liability to Asset Ratio (LAR), Surplus/Deficit Score (SDS), Liquidity Score (LS), and Equity Investment Score (EIS).

  1. Net Asset Score (NAS):
    • Formula: NAS = (Net assets available for members’ benefits / Total assets) × 100
    • Significance: It shows the percentage of assets available for members, indicating the fund’s financial health and efficiency.
  2. Liability to Asset Ratio (LAR):
    • Formula: LAR = (Total liabilities / Total assets) × 100 (Inverted in scoring: 100 – LAR)
    • Significance: A lower LAR means a stronger financial position, suggesting lower financial risk.
  3. Surplus/Deficit Score (SDS):
    • Formula: SDS = (Surplus/deficit in net assets / Total assets) × 100
    • Significance: Reflects the fund’s profitability and financial adjustments over time.
  4. Liquidity Score (LS):
    • Formula: LS = (Cash + Fixed income / Total investments) × 100
    • Significance: A higher LS indicates better short-term financial stability, crucial for meeting immediate obligations.
  5. Equity Investment Score (EIS):
    • Formula: EIS = (Equity / Total investments) × 100
    • Significance: Shows the fund’s investment in equities, reflecting its investment strategy and risk profile.

Weighting Each Metric

  • NAS (40%): Gets the highest weight, reflecting its direct impact on member benefits.
  • LAR (30%): Important for showing the fund’s solvency and risk level.
  • SDS (10%), LS (10%), EIS (10%): These are given moderate weights, balancing their importance with the fund’s overall health and strategy.

 

Conclusion

This approach to ranking superannuation funds using these formulas and weight assignments offers a clear, quantifiable method to assess a fund’s performance. It allows for a balanced view, incorporating both immediate financial health and long-term investment strategies.

 

 

 

Rodrigo Diaz
Author: Rodrigo Diaz

I'm Rodrigo from Mexico, and I am passionate about learning and career growth. I hold a law degree, a master's in business management, and a diploma in civil construction design. My expertise is in starting businesses and product design. I've worked in agriculture, IT, and the public sector, gaining insights into business operations. Outside work, I'm an avid golfer and enjoy spending time with my family, especially sharing experiences with my daughter.