DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
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Two-Component Disaggregation of ROE
Activision Blizzard Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
- Return on Assets (ROA)
- The return on assets exhibited fluctuations over the analyzed period. It started at 10.17% at the end of 2018, then decreased to its lowest value of 7.57% in 2019. Subsequently, it improved to 9.51% in 2020 and peaked at 10.77% in 2021. However, in 2022, ROA declined significantly to 5.53%, indicating reduced efficiency in asset utilization during the latest period.
- Financial Leverage
- Financial leverage showed a gradual decline from 1.57 in 2018 to 1.42 by 2021, where it stabilized through 2022. This trend suggests a slight reduction in the use of debt relative to equity over time, leading to a more conservative capital structure in recent years.
- Return on Equity (ROE)
- Return on equity followed a pattern similar to ROA. It dropped from 15.96% in 2018 to 11.74% in 2019, then rose to 14.61% in 2020 and again to 15.34% in 2021. In 2022, ROE decreased sharply to 7.86%, indicating a notable decline in profitability from shareholders’ perspective in the most recent year.
Three-Component Disaggregation of ROE
Activision Blizzard Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
- Net Profit Margin
- The net profit margin demonstrated an overall increasing trend from 2018 to 2021, rising from 24.17% to a peak of 30.66%. However, in 2022 there was a significant decline to 20.1%, indicating a notable reduction in profitability relative to revenue in the most recent year.
- Asset Turnover
- The asset turnover ratio showed a general decline over the five-year period. Starting at 0.42 in 2018, it decreased steadily to 0.27 by 2022. This trend suggests diminished efficiency in the use of assets to generate revenue.
- Financial Leverage
- Financial leverage remained relatively stable but exhibited a gradual decrease from 1.57 in 2018 to 1.42 in both 2021 and 2022. This indicates a slight reduction in the reliance on debt financing or an improvement in the equity base over time.
- Return on Equity (ROE)
- Return on equity, after declining from 15.96% in 2018 to a low of 11.74% in 2019, rebounded by 2021 to 15.34%. Nonetheless, it experienced a marked decrease to 7.86% in 2022, reflecting a diminished ability to generate profit from shareholders' equity in the latest period.
Five-Component Disaggregation of ROE
Activision Blizzard Inc., decomposition of ROE
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
- Tax Burden
- The tax burden ratio exhibited a declining trend from 0.97 in 2018 to 0.84 in 2020, indicating a decreasing proportion of earnings paid in taxes during this period. However, from 2020 onwards, there was a slight increase, reaching 0.87 by the end of 2022.
- Interest Burden
- The interest burden ratio showed a generally stable and favorable trend, improving from 0.93 in 2018 to a peak of 0.97 in 2021, before a minor decline to 0.94 in 2022. This suggests consistent control over interest expenses relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin experienced significant fluctuations, initially stable around 26-27% in 2018 and 2019, followed by a noticeable increase to 33.58% in 2020 and further to 37.17% in 2021, signaling improved operational profitability. However, in 2022, the margin sharply declined to 24.6%, indicating potential challenges affecting operational efficiency or increased costs.
- Asset Turnover
- Asset turnover ratio declined from 0.42 in 2018 to 0.33 in 2019, stabilizing at 0.35 through 2020 and 2021, before dropping again to 0.27 in 2022. This trend suggests decreasing efficiency in using assets to generate revenue, particularly notable in the latter year.
- Financial Leverage
- Financial leverage remained relatively stable with a slight downward trend, moving from 1.57 in 2018 to 1.42 in both 2021 and 2022. This reflects a gradual reduction in the degree of debt financing relative to equity.
- Return on Equity (ROE)
- ROE demonstrated considerable variability over the period. It declined from 15.96% in 2018 to 11.74% in 2019, improved to 14.61% in 2020 and further to 15.34% in 2021, suggesting stronger profitability for shareholders. Nevertheless, a marked decrease occurred in 2022, where ROE dropped to 7.86%, potentially linked to the reduced EBIT margin and asset turnover.
Two-Component Disaggregation of ROA
Activision Blizzard Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
- Net Profit Margin
- The net profit margin exhibited fluctuations over the five-year period. It initially decreased slightly from 24.17% in 2018 to 23.16% in 2019, then experienced a significant increase to 27.17% in 2020 and further rose to a peak of 30.66% in 2021. However, in 2022, the margin declined sharply to 20.1%, indicating a notable reduction in profitability relative to revenue.
- Asset Turnover
- Asset turnover demonstrated a generally decreasing trend. Starting at 0.42 in 2018, it dropped markedly to 0.33 in 2019. From 2019 to 2021, the ratio remained relatively stable at around 0.35 but then declined again to 0.27 in 2022. This trend suggests a decreasing efficiency in generating revenue from assets over the examined period.
- Return on Assets (ROA)
- ROA showed a decline with some intermediate recovery. It dropped from 10.17% in 2018 to 7.57% in 2019, then improved to 9.51% in 2020 and further increased to 10.77% in 2021, reaching its highest point during the period. However, in 2022, ROA decreased significantly to 5.53%, signaling a reduction in the overall profitability from the company’s asset base.
- Overall Observations
- The data reveals a period of improving profitability and efficiency up to 2021, followed by a notable downturn in 2022 across all measured ratios. The sharp declines in net profit margin, asset turnover, and return on assets in the latest year suggest challenges in generating profit from both revenues and assets. The decline in asset turnover, in particular, points to reduced operational efficiency, which, alongside diminished profitability margins, may indicate increased costs, reduced sales, or asset utilization issues during 2022.
Four-Component Disaggregation of ROA
Activision Blizzard Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | × | |||||
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
- Tax Burden
- The Tax Burden ratio exhibits a declining trend from 0.97 in 2018 to 0.84 in 2020, indicating a reduction in the proportion of earnings retained after tax. There is a slight recovery observed in 2021, with the ratio improving to 0.85 and further increasing marginally to 0.87 in 2022.
- Interest Burden
- The Interest Burden ratio shows relative stability over the years, ranging narrowly between 0.93 and 0.97. It peaks at 0.97 in 2021 but falls back to 0.94 in 2022, suggesting a consistent but slightly fluctuating level of earnings retained after interest expenses.
- EBIT Margin
- The EBIT Margin increases notably from 26.89% in 2018 to a peak of 37.17% in 2021. However, there is a pronounced drop in 2022 to 24.6%, indicating a significant decrease in operational profitability in the most recent year.
- Asset Turnover
- The Asset Turnover ratio declines consistently from 0.42 in 2018 to 0.27 in 2022. This trend suggests diminishing efficiency in generating revenue from assets over the period analyzed.
- Return on Assets (ROA)
- The ROA displays variability, starting at 10.17% in 2018, decreasing to a low of 7.57% in 2019, then increasing to 10.77% in 2021 before sharply dropping to 5.53% in 2022. The declining ROA in the latest year is indicative of reduced effectiveness in asset utilization to generate profits.
Disaggregation of Net Profit Margin
Activision Blizzard Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
- Tax Burden
- The tax burden ratio shows a gradual decline from 0.97 in 2018 to a low of 0.84 in 2020, before slightly increasing to 0.87 by 2022. This indicates a decreasing proportion of earnings lost to taxes over the early years, with a minor rebound in tax impact in the last recorded year.
- Interest Burden
- The interest burden ratio remained relatively stable across the period, fluctuating slightly between 0.93 and 0.97. The highest ratio was observed in 2021 at 0.97, suggesting minimal impact of interest expenses on earnings during that year, followed by a decrease to 0.94 in 2022, indicating a modest increase in interest costs relative to earnings.
- EBIT Margin
- The EBIT margin experienced a significant upward trend from 26.89% in 2018 to a peak of 37.17% in 2021, demonstrating improved operational efficiency and profitability. However, in 2022, there was a notable decline to 24.6%, which marks the lowest margin in the five-year span and may suggest increased operating costs or decreased revenues.
- Net Profit Margin
- The net profit margin followed a similar pattern to the EBIT margin, rising steadily from 24.17% in 2018 to 30.66% in 2021. This increase reflects enhanced overall profitability encompassing all costs. Nevertheless, there was a significant drop to 20.1% in 2022, the lowest point in the period analyzed, indicating higher expenses or lower net income relative to revenues in that year.