DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Quarterly Data
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
Two-Component Disaggregation of ROE
Biogen Inc., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31), 10-K (reporting date: 2020-12-31), 10-Q (reporting date: 2020-09-30), 10-Q (reporting date: 2020-06-30), 10-Q (reporting date: 2020-03-31), 10-K (reporting date: 2019-12-31), 10-Q (reporting date: 2019-09-30), 10-Q (reporting date: 2019-06-30), 10-Q (reporting date: 2019-03-31), 10-K (reporting date: 2018-12-31), 10-Q (reporting date: 2018-09-30), 10-Q (reporting date: 2018-06-30), 10-Q (reporting date: 2018-03-31).
The quarterly financial indicators demonstrate clear fluctuations and trends over the examined periods.
- Return on Assets (ROA)
- The ROA started at 11.36% in the first quarter of 2018 and generally showed an increasing trend, reaching a peak around mid-2020 at 23.23%. Following this, there is a noticeable decline from late 2020 through 2021, falling to a low of approximately 6.49%-6.52%. After this low point, the ROA displays some recovery in 2022, climbing back to 11.53% by the third quarter. Overall, the ROA reflects significant volatility with a high point in mid-2020 and a marked dip thereafter, followed by gradual recovery.
- Financial Leverage
- This ratio remained relatively stable throughout the analyzed period. Starting at 1.86 in early 2018, it gradually increased to a peak of 2.32 in the third quarter of 2020. After this peak, the financial leverage slowly decreased, ending around 1.95 in the third quarter of 2022. The movements here suggest moderate fluctuations in leverage levels, with a tendency to increase up to 2020 before a reduction towards more conservative leverage in 2022.
- Return on Equity (ROE)
- The ROE shows a pronounced upward trend from 21.09% in early 2018 to an apex of 52.41% in mid-2020. This substantial increase indicates significantly improved equity returns during this timeframe. However, a sharp decline is evident following the peak, with ROE dropping to below 15% by late 2021. A moderate recovery is observed in 2022, with ROE rising again to above 22% by the third quarter. This pattern suggests that while profitability on equity substantially improved and peaked around mid-2020, it later faced considerable challenges but began to rebound in 2022.
In summary, the financial ratios depict strong profitability growth through the first half of the analyzed period, culminating around mid-2020. This is followed by a contraction phase, with all three metrics—ROA, financial leverage, and ROE—showing signs of decline or stabilization at lower levels. The latter part of the period suggests cautious improvement and stabilization across key financial performance indicators.
Three-Component Disaggregation of ROE
Biogen Inc., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31), 10-K (reporting date: 2020-12-31), 10-Q (reporting date: 2020-09-30), 10-Q (reporting date: 2020-06-30), 10-Q (reporting date: 2020-03-31), 10-K (reporting date: 2019-12-31), 10-Q (reporting date: 2019-09-30), 10-Q (reporting date: 2019-06-30), 10-Q (reporting date: 2019-03-31), 10-K (reporting date: 2018-12-31), 10-Q (reporting date: 2018-09-30), 10-Q (reporting date: 2018-06-30), 10-Q (reporting date: 2018-03-31).
The analysis of the quarterly financial ratios reveals several notable trends in profitability, efficiency, leverage, and shareholder returns over the observed periods.
- Net Profit Margin
- The net profit margin exhibited a generally positive trend from early 2018 through mid-2019, increasing from approximately 23.5% to peak values around 41%. This indicates a strengthening in profitability and operational efficiency during this timeframe. However, starting from late 2019 into 2021, a marked decline is evident, with margins dropping from nearly 41% down to around 14%. Some recovery occurs from early 2022 onward, with the margin rising again to approximately 27.6% by the last reported quarter. This pattern suggests periods of fluctuating profit efficiency, potentially influenced by market conditions or cost structure changes.
- Asset Turnover
- The asset turnover ratio, reflecting how effectively assets generate revenue, remained relatively stable throughout the analyzed periods, fluctuating modestly between 0.42 and 0.57. The highest turnover values were seen around mid-2020, coinciding somewhat with elevated profit margins. Conversely, a slight downward trend can be observed from late 2020 into 2022, settling around 0.42. This indicates a mild reduction in asset utilization efficiency in the more recent periods.
- Financial Leverage
- Financial leverage ratios show a gradual increase from roughly 1.85 in early 2018 up to a peak near 2.32 in late 2020. This upward trend implies a growing reliance on debt or other leverage components to finance the company’s assets. After peaking, the leverage ratio declines towards 1.95 by late 2022, indicating some deleveraging or capital structure adjustments in the latter periods.
- Return on Equity (ROE)
- The return on equity demonstrates a pattern closely aligned with net profit margin and leverage trends. Starting at around 21% in early 2018, ROE rises steadily to a high near 52% by mid-2020. This high point reflects strong profitability amplified by increased leverage. Subsequently, ROE declines sharply to approximately 12.9% by early 2022, corresponding with the reduced profit margins and leverage. A modest rebound to around 22.4% occurs in the final quarter, suggesting an improvement in overall profitability and capital efficiency.
Overall, the company experienced significant growth in profitability and shareholder returns through 2018 and mid-2020, facilitated by moderate leverage and stable asset utilization. The subsequent downturn in margins and ROE alongside a slight decrease in asset turnover and leverage indicates challenges affecting financial performance, followed by a gradual recovery towards the end of the observation period. These dynamics suggest a need for continued focus on operational efficiency and capital management to sustain improvements.
Two-Component Disaggregation of ROA
Biogen Inc., decomposition of ROA (quarterly data)
Based on: 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31), 10-K (reporting date: 2020-12-31), 10-Q (reporting date: 2020-09-30), 10-Q (reporting date: 2020-06-30), 10-Q (reporting date: 2020-03-31), 10-K (reporting date: 2019-12-31), 10-Q (reporting date: 2019-09-30), 10-Q (reporting date: 2019-06-30), 10-Q (reporting date: 2019-03-31), 10-K (reporting date: 2018-12-31), 10-Q (reporting date: 2018-09-30), 10-Q (reporting date: 2018-06-30), 10-Q (reporting date: 2018-03-31).
The financial metrics examined demonstrate notable fluctuations across the observed periods, reflecting variations in operational efficiency, profitability, and asset utilization.
- Net Profit Margin (%)
- Net profit margin exhibited a generally upward trajectory between early 2018 and late 2019, rising from approximately 23.54% to a peak near 40.96%. This indicates an improvement in profitability relative to revenue during that timeframe. However, starting in 2020, the margin declined markedly, reaching a low point around 13.40% by the end of 2021. Thereafter, a recovery trend emerged, with the margin increasing again to approximately 27.64% by the third quarter of 2022.
- Asset Turnover (ratio)
- Asset turnover showed marginal variation, fluctuating between 0.46 and 0.57 throughout the period. The metric peaked around mid-2020 at 0.57, implying relatively higher efficiency in generating revenue from assets at that time. A gradual decline followed, with the ratio stabilizing at about 0.42 in the later quarters of 2022, pointing to reduced asset utilization efficiency.
- Return on Assets (ROA) (%)
- Return on assets trends largely mirror those of net profit margin, increasing from 11.36% in early 2018 to a high near 23.23% by mid-2020. Subsequent periods saw ROA decay to below 7% by late 2021, suggesting diminished overall profitability relative to asset base. A modest recovery in ROA is evident thereafter, with the ratio rising to approximately 11.53% by the third quarter of 2022.
In summary, the data indicate that profit margins and asset returns improved significantly through 2019 and mid-2020, which was accompanied by relatively stable asset turnover. However, a pronounced decline across profitability metrics occurred after mid-2020, with only partial recovery towards late 2022. This pattern suggests challenges in maintaining profitability despite fairly steady asset utilization rates.