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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- Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
- Aggregate Accruals
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Two-Component Disaggregation of ROE
Cisco Systems Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Jul 27, 2024 | = | × | |||
| Jul 29, 2023 | = | × | |||
| Jul 30, 2022 | = | × | |||
| Jul 31, 2021 | = | × | |||
| Jul 25, 2020 | = | × | |||
| Jul 27, 2019 | = | × |
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
- Return on Assets (ROA)
- The Return on Assets displayed a generally stable trend from 2019 to 2023, fluctuating slightly between 10.86% and 12.57%. A notable peak occurred in 2022 at 12.57%, followed by a minor decrease in 2023 to 12.38%. However, in 2024, there was a significant decline to 8.29%, indicating a reduction in asset efficiency or profitability during this period.
- Financial Leverage
- Financial leverage decreased steadily from 2.91 in 2019 to 2.3 in 2023, suggesting a consistent reduction in the use of debt financing over this timeframe. In 2024, the ratio increased to 2.74, indicating a relative rise in leverage and a potential shift toward greater reliance on debt or increased liabilities compared to equity in the most recent year.
- Return on Equity (ROE)
- Return on Equity showed a clear downward trend from 34.62% in 2019 to 22.7% in 2024. The most pronounced declines occurred between 2019 and 2021, with a gradual recovery in 2022 and 2023, followed by another decline in 2024. This suggests diminishing profitability from shareholders' equity over time, with intermittent periods of partial improvement.
- Overall Insights
- The overall financial performance indicates a weakening trend in profitability, as evidenced by declines in both ROA and ROE in the most recent year. The temporary reduction in financial leverage from 2019 through 2023 may have supported better risk management, but the increase in 2024 aligns with the observed decrease in asset efficiency and equity returns. These patterns may reflect changes in operational efficiency, capital structure decisions, or external market factors affecting financial outcomes.
Three-Component Disaggregation of ROE
Cisco Systems Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Jul 27, 2024 | = | × | × | ||||
| Jul 29, 2023 | = | × | × | ||||
| Jul 30, 2022 | = | × | × | ||||
| Jul 31, 2021 | = | × | × | ||||
| Jul 25, 2020 | = | × | × | ||||
| Jul 27, 2019 | = | × | × |
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
- Net Profit Margin
- The net profit margin demonstrates a generally stable trend with minor fluctuations between 2019 and 2023, oscillating between approximately 21% and 23%. However, in the most recent period, a noticeable decline occurred, dropping to 19.18%, indicating reduced profitability relative to revenue.
- Asset Turnover
- Asset turnover remained relatively consistent from 2019 through 2023, with values close to 0.5 to 0.56. This suggests stable efficiency in utilizing assets to generate revenue during this time. Nonetheless, a significant drop to 0.43 was recorded in the latest period, reflecting diminished efficiency in asset utilization.
- Financial Leverage
- Financial leverage exhibited a downward trend from 2.91 in 2019 to 2.3 in 2023, implying a gradual reduction in reliance on debt financing or an increase in equity base. This trend reversed partially in 2024, with leverage rising to 2.74, suggesting increased financial risk or a strategic shift toward greater debt use.
- Return on Equity (ROE)
- ROE declined consistently over the analyzed period. Starting at a high of 34.62% in 2019, it decreased year-over-year to 22.7% by 2024. This downward trend points to diminishing returns on shareholders’ equity, which may be connected to the observed decreases in net profit margin and asset turnover, coupled with fluctuating financial leverage.
Five-Component Disaggregation of ROE
Cisco Systems Inc., decomposition of ROE
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
- Tax Burden
- The tax burden ratio remained relatively stable from 2019 to 2021 at 0.8, with a gradual increase observed starting in 2022, reaching 0.84 by 2024. This indicates a slight rise in the proportion of earnings retained after taxes over the period.
- Interest Burden
- The interest burden demonstrated a small upward trend from 0.94 in 2019 to a peak of 0.98 in 2022, suggesting improved efficiency in managing interest expenses during this period. However, it declined to 0.92 in 2024, indicating a relative increase in interest costs or financial expenses in the most recent year.
- EBIT Margin
- The EBIT margin showed a declining trend over the six-year period, starting at 29.73% in 2019 and decreasing to 24.61% in 2024. This reflects a gradual reduction in operating profitability, possibly attributable to increasing costs or pricing pressures affecting earnings before interest and taxes.
- Asset Turnover
- Asset turnover remained fairly stable around 0.51 to 0.56 from 2019 through 2023, with a noticeable drop to 0.43 in 2024. The lower value in 2024 indicates decreased efficiency in utilizing assets to generate sales, potentially reflecting changes in asset base or revenue generation capacity.
- Financial Leverage
- Financial leverage steadily decreased from 2.91 in 2019 to 2.3 in 2023, suggesting a reduction in reliance on debt or increased equity financing. However, a rebound to 2.74 occurred in 2024, indicating a renewed increase in leverage, which may impact risk and return profiles.
- Return on Equity (ROE)
- Return on equity exhibited a downward trend, declining from a high of 34.62% in 2019 to 22.7% in 2024. This decrease aligns with the trends observed in EBIT margin and asset turnover, highlighting diminishing overall profitability and efficiency in generating equity returns during the analyzed timeframe.
Two-Component Disaggregation of ROA
Cisco Systems Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Jul 27, 2024 | = | × | |||
| Jul 29, 2023 | = | × | |||
| Jul 30, 2022 | = | × | |||
| Jul 31, 2021 | = | × | |||
| Jul 25, 2020 | = | × | |||
| Jul 27, 2019 | = | × |
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
- Net Profit Margin
- The net profit margin demonstrated relative stability from 2019 through 2023, fluctuating between approximately 21.26% and 22.91%. This indicates sustained profitability during this period. However, there is a noticeable decline in 2024, dropping to 19.18%, suggesting a reduction in profitability relative to revenue in the most recent year.
- Asset Turnover
- The asset turnover ratio remained relatively constant around the 0.51 to 0.56 range from 2019 to 2023, indicating steady efficiency in utilizing assets to generate revenue. In 2024, there is a significant decrease to 0.43, pointing to reduced efficiency in asset use compared to previous years.
- Return on Assets (ROA)
- ROA showed a consistent decline from 11.88% in 2019 to 10.86% in 2021, followed by an increase in 2022 and 2023 up to 12.57% and 12.38%, respectively. This reflects an improvement in generating profit from assets during those years. Nonetheless, a sharp drop to 8.29% in 2024 signals a notable decrease in asset profitability, aligning with the observed falls in both net profit margin and asset turnover.
Four-Component Disaggregation of ROA
Cisco Systems Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Jul 27, 2024 | = | × | × | × | |||||
| Jul 29, 2023 | = | × | × | × | |||||
| Jul 30, 2022 | = | × | × | × | |||||
| Jul 31, 2021 | = | × | × | × | |||||
| Jul 25, 2020 | = | × | × | × | |||||
| Jul 27, 2019 | = | × | × | × |
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
- Tax Burden
- The tax burden ratio remained relatively stable from 2019 to 2021 at around 0.8, followed by a gradual increase starting in 2022 and reaching 0.84 in 2024. This suggests a slight rise in the effective tax rate over the most recent years.
- Interest Burden
- The interest burden ratio showed a generally positive trend, increasing from 0.94 in 2019 to a peak of 0.98 in 2022, indicating improved operating income relative to earnings before interest and taxes. However, in 2024, the ratio declined to 0.92, suggesting a reduced capacity to cover interest expenses compared to previous years.
- EBIT Margin
- The EBIT margin exhibited a declining trend over the six-year period, decreasing from 29.73% in 2019 to 24.61% in 2024. While there was a slight recovery in 2022 to 28.78%, the overall movement points to a reduction in operating profitability.
- Asset Turnover
- Asset turnover remained relatively stable from 2019 through 2023, fluctuating between 0.51 and 0.56. However, there was a notable decline in 2024, when the ratio dropped to 0.43, indicating reduced efficiency in utilizing assets to generate revenue during the most recent period.
- Return on Assets (ROA)
- ROA showed a gradual decline over the years, starting at 11.88% in 2019, dipping to 10.86% in 2021, then peaking again at 12.57% in 2022. Afterward, ROA decreased to 8.29% in 2024. This variation suggests fluctuations in the company's ability to generate returns from its asset base, with a significant downturn in the most recent year.
Disaggregation of Net Profit Margin
Cisco Systems Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Jul 27, 2024 | = | × | × | ||||
| Jul 29, 2023 | = | × | × | ||||
| Jul 30, 2022 | = | × | × | ||||
| Jul 31, 2021 | = | × | × | ||||
| Jul 25, 2020 | = | × | × | ||||
| Jul 27, 2019 | = | × | × |
Based on: 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-25), 10-K (reporting date: 2019-07-27).
- Tax Burden
- The tax burden ratio exhibits a gradual increase over the periods analyzed, rising from 0.80 in 2019 to 0.84 in 2024. This trend suggests a slight increase in the effective tax rate over time, potentially indicating higher tax expenses relative to pre-tax earnings.
- Interest Burden
- The interest burden ratio shows minor fluctuations, initially increasing from 0.94 in 2019 to 0.98 in 2022, followed by a decline to 0.92 in 2024. While the earlier periods reflect a reduction in interest expense impact on earnings, the decrease in 2024 may indicate a higher relative interest expense or other financial costs affecting earnings before interest and taxes (EBIT).
- EBIT Margin
- The EBIT margin percentage demonstrates a declining trend across the years, from a peak of 29.73% in 2019 down to 24.61% in 2024. Although there was a slight recovery in 2022, the overall decrease suggests reduced operational profitability relative to revenue, possibly due to increased costs or pricing pressures.
- Net Profit Margin
- The net profit margin also declines over the timeframe, beginning at 22.39% in 2019 and ending at 19.18% in 2024. This consistent decrease, despite some short-term increases, points toward reduced overall profitability after all expenses, including taxes and interest, highlighting potential challenges in cost management or revenue generation efficiency.