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), 10-K (reporting date: 2017-12-31), 10-Q (reporting date: 2017-09-30), 10-Q (reporting date: 2017-06-30), 10-Q (reporting date: 2017-03-31).
The analyzed financial data reveals notable trends in key performance ratios over recent quarters. Return on Assets (ROA) initially shows a rising trajectory, increasing steadily from 10.73% in March 2017 to a peak of 23.23% in September 2020. This growth suggests improving efficiency in utilizing assets to generate earnings over this period. However, from this peak, ROA experiences a gradual decline, falling to 6.14% by December 2021. Subsequently, a mild recovery trend is observed, with ROA increasing to 11.53% by September 2022.
Financial Leverage remains relatively stable throughout the periods but shows a slight upward drift from about 1.85 to over 2.30 during the middle timeframe, particularly around 2020. This indicates a modest increase in the company's use of debt relative to equity. After reaching a high in mid-2020 and early 2021, leverage decreases gradually to 1.95 by September 2022, reflecting potential deleveraging efforts or equity growth.
Return on Equity (ROE) movements generally mirror those of ROA but with amplified magnitude, consistent with the changes in financial leverage. ROE climbs sharply from approximately 20.13% in early 2017 to an apex of 52.41% in September 2020. Such a high return corresponds with increased profitability as well as leverage during this time. Post peak, ROE declines markedly to a low of 12.90% by September 2022, although it starts to trend upward again towards the last reported quarters, ending at 22.42%.
- Return on Assets (ROA)
- Shows a clear upward trend until late 2020, indicating improved asset efficiency, followed by a notable decrease and a partial recovery in late 2022.
- Financial Leverage
- Exhibits moderate volatility with a slight increase peaking in 2020/2021, then gradually decreasing, suggesting fluctuating reliance on debt financing.
- Return on Equity (ROE)
- Has a pronounced rise paralleling ROA and leverage increases with a peak around September 2020, followed by a substantial fall and signs of recovery by late 2022, reflecting changes in profitability and capital structure.
Overall, the data illustrates a period of enhanced profitability and asset utilization leading up to 2020, driven in part by greater financial leverage. Subsequently, the company entered a phase of diminished returns, possibly influenced by operational or market challenges, with early indications of stabilization and recovery emerging in the most recent quarters.
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), 10-K (reporting date: 2017-12-31), 10-Q (reporting date: 2017-09-30), 10-Q (reporting date: 2017-06-30), 10-Q (reporting date: 2017-03-31).
The financial data reveals several noteworthy trends in key performance ratios over the analyzed periods.
- Net Profit Margin (%)
- The net profit margin exhibits an overall increasing trend starting from a baseline around 20.69% in early 2017, reaching a peak near 40.96% by the first quarter of 2020. Following this peak, there is a marked decline through 2021, with margins falling to approximately 13.4% by the end of 2021. However, the margin shows a recovery trend in 2022, rising again to 27.64% by the third quarter.
- Asset Turnover (ratio)
- Asset turnover remains relatively stable with slight fluctuations. Beginning around 0.52 in early 2017, it shows small variations between 0.46 and 0.57 through the years, without significant upward or downward momentum. The lower end of the range appears after 2021, dipping gradually to approximately 0.42 by late 2022.
- Financial Leverage (ratio)
- Financial leverage increases moderately from about 1.85 in early 2017 to a peak of roughly 2.32 during 2020. Post-2020, it exhibits a gradual decrease, declining to about 1.95 toward the third quarter of 2022. This reflects a cautious reduction in leverage over recent periods.
- Return on Equity (ROE %)
- ROE presents a pattern closely aligned with net profit margin trends, starting around 20.13% in early 2017 and climbing to a substantial peak of over 52% by late 2020. After this peak, ROE declines sharply in 2021, reaching a low of approximately 12.9% at the year's end. Following this decline, ROE begins to recover moderately in 2022, reaching 22.42% in the third quarter.
In summary, the company experienced strong profitability improvements, peaking in 2020, followed by a notable downturn in 2021 across profitability and return measures. Asset efficiency remained relatively stable, while financial leverage increased up to 2020 and then decreased thereafter. The latest data from 2022 indicates recovery signs in profitability and ROE despite lower asset turnover and reduced leverage compared to peak levels.
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), 10-K (reporting date: 2017-12-31), 10-Q (reporting date: 2017-09-30), 10-Q (reporting date: 2017-06-30), 10-Q (reporting date: 2017-03-31).
The financial data exhibits several distinct trends in key performance indicators over the observed periods. Net profit margin, asset turnover, and return on assets provide insights into profitability, efficiency, and overall asset utilization.
- Net Profit Margin (%)
- The net profit margin shows a generally positive trend from early 2017 through 2020, rising from around 20.69% in the first quarter of 2017 to a peak above 40% at the start of 2020. This demonstrates a strengthening profitability in that timeframe. However, commencing in 2020, there is a noticeable decline in net profit margins, falling to levels near 13-16% by mid to late 2021. A partial recovery is observed toward the end of the dataset in 2022, with margins increasing again to approximately 27.64%, indicating fluctuations in profitability possibly due to changes in cost structures, revenue streams, or external market factors.
- Asset Turnover (ratio)
- Asset turnover remains relatively stable throughout the periods measured, ranging mostly between 0.42 and 0.57. The highest asset turnover values are seen during mid-2019 through 2020, reflecting a period of slightly increased efficiency in asset utilization. Post 2020, there is a gradual decline in asset turnover down to about 0.42 by late 2022, suggesting a decrease in how effectively assets are used to generate sales or revenues over time.
- Return on Assets (ROA) (%)
- The return on assets closely mirrors the pattern observed in net profit margin, with steady growth from about 10.73% in early 2017 up to a peak of over 23% by late 2019 and early 2020. This indicates improved efficiency in generating profit from the company’s asset base during that period. From 2020 onward, ROA declines significantly, dropping to a low near 6% during 2021, before recovering slightly to above 11% by late 2022. This decline correlates with the decreases observed in both net profit margin and asset turnover, signaling challenges in profitability and operational efficiency during that period.
Overall, the data reflects a strong performance up until early 2020, followed by a period of reduced profitability and efficiency that begins to improve toward the end of 2022. The simultaneous movements in net profit margin, asset turnover, and return on assets highlight the interconnectedness of profitability and asset management in influencing overall financial health.