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.
Two-Component Disaggregation of ROE
Applied Materials Inc., decomposition of ROE
Based on: 10-K (reporting date: 2025-10-26), 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25).
The analysis of the financial performance over the reported periods reveals several important trends regarding profitability and capital structure.
- Return on Assets (ROA)
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ROA exhibited an upward trend from 16.19% in the initial period to a peak of 24.41% by the third period. This indicates an increasing efficiency in asset utilization to generate profits during these years. However, a gradual decline followed, with ROA decreasing to 19.28% by the most recent period. This suggests a reduction in asset profitability, though overall ROA remains at relatively strong levels.
- Financial Leverage
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Financial leverage remained relatively stable around 2.11 in the early years, followed by a slight increase to 2.19 in the third period. Afterward, leverage steadily declined to 1.78 by the last period. This reduction in leverage implies a strategic movement toward a more conservative capital structure with potentially lower financial risk.
- Return on Equity (ROE)
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ROE mirrored the ROA trend but with more pronounced changes, rising substantially from 34.21% initially to a high of 53.51% in the third period. This strong performance highlights effective equity utilization combined with leverage effects during these years. Subsequently, ROE decreased consistently, reaching 34.28% by the latest period, indicating a moderation in equity returns which aligns with the observed decline in both ROA and financial leverage.
Overall, the company demonstrated strong profitability and return measures during the middle periods, associated with moderately elevated leverage. The subsequent decline in both ROA and ROE, along with a reduction in financial leverage, suggests a strategic shift towards greater financial conservatism, which may reflect changes in market conditions or management priorities emphasizing risk reduction.
Three-Component Disaggregation of ROE
Applied Materials Inc., decomposition of ROE
Based on: 10-K (reporting date: 2025-10-26), 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25).
The analysis of the financial ratios over the reported periods reveals various trends in profitability, asset management, leverage, and shareholder returns.
- Net Profit Margin
- The net profit margin showed a general increasing trend from 21.04% in 2020 to a peak of 26.41% in 2024, indicating an improvement in the company's ability to convert revenue into actual profit. However, there was a slight decline to 24.67% in 2025, suggesting some pressure on profitability in the most recent year.
- Asset Turnover
- The asset turnover ratio improved steadily from 0.77 in 2020 to a high of 0.96 in 2022, reflecting more efficient use of assets to generate sales. After 2022, the ratio declined to 0.78 by 2025, indicating a decreasing efficiency in asset utilization over the last few years.
- Financial Leverage
- Financial leverage remained stable at 2.11 in 2020 and 2021, rose slightly to 2.19 in 2022, and then decreased consistently to 1.78 by 2025. This pattern suggests a conservative approach in the recent years, with the company reducing its reliance on debt or other financial obligations relative to equity.
- Return on Equity (ROE)
- ROE increased significantly from 34.21% in 2020 to 53.51% in 2022, indicating strong profitability relative to shareholder equity. However, there was a notable decline to 34.28% by 2025, aligning with reduced financial leverage and a slight drop in net profit margin, suggesting a moderation in equity returns in the later periods.
Overall, while profitability and asset efficiency showed improvement in the early years, recent data indicate some challenges with asset utilization and a deliberate reduction in financial leverage, which collectively have contributed to a decline in return on equity. The company appears to be adopting a less leveraged, more conservative financial posture in recent years, which impacts the overall financial performance as measured by ROE.
Five-Component Disaggregation of ROE
Applied Materials Inc., decomposition of ROE
Based on: 10-K (reporting date: 2025-10-26), 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25).
The financial data indicates several notable trends over the periods analyzed. The tax burden ratio shows relative stability between 0.86 and 0.89 from 2020 through 2024, with a noticeable decline to 0.75 in 2025, suggesting a reduction in the effective tax rate impacting net earnings. The interest burden ratio remains consistently high around 0.95 to 0.97, indicating stable interest expense management relative to earnings before interest and taxes.
The EBIT margin demonstrates a positive upward trend, increasing from 25.61% in 2020 to 33.63% in 2025, with steady growth especially evident from 2022 onward. This improvement reflects enhanced operational efficiency or profitability at the earnings before interest and taxes level.
Asset turnover rises from 0.77 in 2020 to a peak of 0.96 in 2022 but declines afterward to about 0.78 by 2025. This pattern suggests an initial improvement in sales generated per unit of assets, followed by a reduction in asset utilization efficiency in the later years.
Financial leverage decreases gradually from 2.11 in 2020 and 2021 to 1.78 in 2025, indicating a reduction in debt relative to equity and a more conservative capital structure over time.
Return on equity (ROE) follows a rising trajectory from 34.21% in 2020 to a peak of 53.51% in 2022, subsequently declining to 34.28% by 2025. This pattern is influenced by the interplay of improving EBIT margins, fluctuating asset turnover, and decreasing financial leverage. The decline in ROE after 2022 suggests that the diminishing asset turnover and lower financial leverage have outweighed the benefits of margin improvements.
- Tax Burden
- Relatively stable until 2024, followed by a decrease in 2025 indicating lower tax impacts.
- Interest Burden
- Consistently high, showing effective interest expense control.
- EBIT Margin
- Consistent improvement reflecting enhanced operational profitability.
- Asset Turnover
- Improved initially, then declined, indicating fluctuating asset efficiency.
- Financial Leverage
- Gradual decrease, evidencing a shift towards lower debt usage.
- Return on Equity (ROE)
- Increased sharply until 2022, then decreased, driven by changes in margin, asset efficiency, and leverage.
Two-Component Disaggregation of ROA
Applied Materials Inc., decomposition of ROA
Based on: 10-K (reporting date: 2025-10-26), 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25).
The financial metrics indicate notable developments over the analyzed periods, reflecting variations in profitability and operational efficiency.
- Net Profit Margin
- The net profit margin exhibits an overall upward trend from 21.04% in 2020 to a peak of 26.41% in 2024, demonstrating improved profitability. However, it slightly decreases to 24.67% by 2025, suggesting a minor reduction in profit retention relative to revenue towards the end of the period.
- Asset Turnover
- Asset turnover shows an initial increase from 0.77 in 2020 to 0.96 in 2022, indicating more efficient utilization of assets to generate sales. Subsequent years reveal a decline to 0.78 in 2025, implying a reduction in asset efficiency or a possible increase in asset base without a proportional rise in sales.
- Return on Assets (ROA)
- Return on assets rises substantially from 16.19% in 2020 to 24.41% in 2022, reflecting enhanced overall asset profitability. After this peak, ROA steadily declines to 19.28% in 2025, which may correlate with the decrease in asset turnover and net profit margin, indicating a diminishing return on the company's asset investments.
In summary, the company experienced improved profitability and asset efficiency up to 2022, followed by a gradual decline in these indicators in the later years. This pattern suggests a cycle of peak operational performance followed by a phase of adjustment or challenges affecting profitability and asset management.
Four-Component Disaggregation of ROA
Applied Materials Inc., decomposition of ROA
Based on: 10-K (reporting date: 2025-10-26), 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25).
The financial analysis indicates several notable trends over the observed periods. The tax burden ratio remains relatively stable between 0.86 and 0.89 from 2020 through 2024, before declining significantly to 0.75 in 2025. This decrease in the tax burden ratio in the final year suggests an improvement in tax efficiency or potentially the impact of favorable tax policies or benefits.
The interest burden ratio shows strong consistency, holding steady at approximately 0.95 to 0.97 throughout the entire period. This stability indicates that interest expenses relative to earnings before interest and taxes have remained well managed over time with no noticeable increase in financial leverage stress.
The EBIT margin demonstrates an overall upward trend. Starting from 25.61% in 2020, it increases significantly to over 30% by 2021 and maintains a range close to this level through 2024. The margin peaks at 33.63% in 2025, highlighting improved operational profitability and cost control over the period.
Conversely, asset turnover experiences a fluctuation. It rises from 0.77 in 2020 to a peak of 0.96 in 2022, indicating more efficient use of assets for generating sales in the earlier part of the period. However, asset turnover declines afterward, dropping to 0.78 by 2025, which may suggest reduced asset utilization efficiency or increased asset base without proportional revenue growth in recent years.
Return on Assets (ROA) shows a pattern consistent with both EBIT margin improvements and asset turnover changes. ROA climbs from 16.19% in 2020 to a high of 24.41% in 2022, reflecting a period of strong overall asset profitability. Subsequently, it decreases gradually to 19.28% by 2025, suggesting that despite improved margins, the decline in asset turnover has negatively impacted overall asset returns.
- Tax Burden
- Relatively stable until 2024, then marked decrease indicating enhanced tax efficiency in 2025.
- Interest Burden
- Consistently stable, showing no increase in relative interest costs across all years.
- EBIT Margin
- Strong upward trend with improvement in operational profitability; highest level achieved in 2025.
- Asset Turnover
- Increased efficiency until 2022, followed by a notable decline through 2025, indicating less effective asset use.
- Return on Assets (ROA)
- Improvement until 2022 driven by margin and turnover gains, then gradual decline linked to lower asset turnover.
Disaggregation of Net Profit Margin
Applied Materials Inc., decomposition of net profit margin ratio
Based on: 10-K (reporting date: 2025-10-26), 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25).
- Tax Burden
- The tax burden ratio remained relatively stable from 2020 to 2024, fluctuating narrowly between 0.86 and 0.89. However, a notable decline to 0.75 occurred in 2025, indicating a significant decrease in the proportion of earnings paid as taxes in that year.
- Interest Burden
- The interest burden ratio demonstrated consistent stability over the six-year period, maintaining a narrow range from 0.95 to 0.97. This suggests little change in the company’s interest expenses relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin showed an upward trend overall. Starting at 25.61% in 2020, it increased notably to over 30% from 2021 onward, reaching a peak of 33.63% in 2025. This reflects improving operational profitability over the period.
- Net Profit Margin
- The net profit margin followed a generally positive trend from 21.04% in 2020 to a peak of 26.41% in 2024, indicating enhanced overall profitability. However, a slight decline to 24.67% was observed in 2025, despite earlier improvements.