Earnings per Member: An Alternative Benchmark to Measure Financial Performance

by Gee Gee Kaufman

Tired of ROAA as the principle yardstick to measure financial performance? I offer another benchmark that assesses the overall execution of the business model and incorporates asset growth, membership growth and profitability into a simple metric widely understood by any investor who owns a share of stock.

On Wall Street, and specifically in financial services, earnings per share and book value are two factors used to measure financial performance and predict stock price movement. Increasing EPS quarter over quarter and meeting analyst’s expectations is critical to improving share price, market capitalization and shareholder return. A mainstay of strategic planning  is to achieve a 15% annualized earning per share growth rate and, thus, drive the stock price higher, trade at an above market price/earnings multiple and create a valuable “commodity” to make acquisitions.

Thanks for the tutorial, but how does this apply to credit unions with neither shareholders nor a vested interest in stock performance? Allow me to introduce the concept of earnings per member.

Shareholders are owners of the companies they invest in; members enjoy a similar relationship as owners of the credit union, but instead of purchasing a single share or shares in the company, join as a member with a single share of ownership often represented by their investment in the share account. Since credit unions report both earnings and membership quarterly, the data is readily available to calculate earnings per member.

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