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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- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Reportable Segments
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Aggregate Accruals
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Two-Component Disaggregation of ROE
Express Scripts Holding Co., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × | |||
| Dec 31, 2014 | = | × | |||
| Dec 31, 2013 | = | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Return on Assets (ROA)
- The Return on Assets shows a consistent upward trend over the five-year period. Starting at 3.44% in 2013, it gradually increased each year, reaching 8.33% by the end of 2017. This growth indicates an improving efficiency in asset utilization to generate profits.
- Financial Leverage
- Financial Leverage increased from 2.45 in 2013 to a peak of 3.19 in 2016, suggesting an increasing reliance on debt or other forms of leverage to finance assets during that time. However, there was a slight decrease to 2.99 in 2017, indicating a modest reduction in leverage after the prior build-up.
- Return on Equity (ROE)
- Return on Equity experienced a strong and steady rise throughout the period, moving from 8.45% in 2013 up to 24.93% in 2017. This represents a nearly threefold increase and reflects growing profitability relative to shareholder equity. The trend, coupled with the ROA increase and leverage pattern, suggests that higher profitability was supported partly by rising leverage but also improved operational performance.
Three-Component Disaggregation of ROE
Express Scripts Holding Co., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Net Profit Margin
- The net profit margin demonstrated a consistent upward trend over the five-year period. Starting at 1.77% in 2013, it increased steadily each year, reaching 4.51% by the end of 2017. This indicates improving profitability and greater efficiency in converting revenue into net income.
- Asset Turnover
- Asset turnover remained relatively stable but showed slight fluctuations. Beginning at 1.94 in 2013, it decreased marginally to 1.88 in 2014, rose again to 1.94 in 2016, and then declined slightly to 1.84 in 2017. Overall, the ratio suggests consistent efficiency in using assets to generate sales, albeit with minor variations.
- Financial Leverage
- Financial leverage exhibited an upward trend initially, increasing from 2.45 in 2013 to a peak of 3.19 in 2016, followed by a slight decline to 2.99 in 2017. This pattern indicates that the company's reliance on debt financing increased for most of the period before a modest reduction in the final year, reflecting adjustments in the capital structure.
- Return on Equity (ROE)
- ROE showed significant growth across the period, climbing from 8.45% in 2013 to 24.93% in 2017. This increase reflects substantial improvements in generating profits from shareholders’ equity, likely supported by higher net profit margins and increased financial leverage, despite the relatively stable asset turnover ratios.
Five-Component Disaggregation of ROE
Express Scripts Holding Co., decomposition of ROE
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Tax Burden
- The tax burden ratio showed a notable increase over the analyzed period, rising from 0.63 in 2013 to 0.92 in 2017. This indicates a growing portion of earnings retained after taxes, especially with a significant jump occurring between 2016 and 2017.
- Interest Burden
- The interest burden ratio remained relatively stable with a moderate upward trend, moving from 0.83 in 2013 to 0.89 in 2017. The consistency suggests steady management of interest expenses relative to earnings before interest and taxes over the years.
- EBIT Margin
- The EBIT margin exhibited continuous improvement, increasing from 3.41% in 2013 to 5.52% in 2017. This progressive growth indicates enhanced operational efficiency and profitability at the earnings before interest and taxes level.
- Asset Turnover
- Asset turnover ratios fluctuated slightly but showed a mild downward trend overall, declining from 1.94 in 2013 to 1.84 in 2017. This suggests a slight reduction in the efficiency with which assets generate revenue.
- Financial Leverage
- Financial leverage increased from 2.45 in 2013 to a peak of 3.19 in 2016, before decreasing marginally to 2.99 in 2017. The upward trend over most of the period indicates greater use of debt financing, although the slight reduction in the last year may imply some deleveraging efforts.
- Return on Equity (ROE)
- ROE demonstrated a strong and consistent upward trajectory, improving substantially from 8.45% in 2013 to 24.93% in 2017. This significant increase reflects enhanced overall profitability and effective use of shareholders' equity, supported by improvements in tax burden, EBIT margin, and financial leverage.
Two-Component Disaggregation of ROA
Express Scripts Holding Co., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × | |||
| Dec 31, 2014 | = | × | |||
| Dec 31, 2013 | = | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Net Profit Margin
- The net profit margin demonstrated a consistent upward trend over the five-year period. Starting at 1.77% at the end of 2013, it increased annually, reaching 4.51% by the end of 2017. This progression indicates an improving ability to generate profit from sales relative to revenue.
- Asset Turnover
- The asset turnover ratio showed relatively stable values with minor fluctuations. It began at 1.94 in 2013, dipped slightly to 1.88 in 2014, then rose back to 1.94 in 2016 before decreasing to 1.84 in 2017. This suggests that the efficiency of using assets to generate revenue remained generally steady, with a slight decrease in the last recorded year.
- Return on Assets (ROA)
- Return on assets exhibited a strong and continuous increase throughout the timeframe. Starting from 3.44% in 2013, the ROA rose steadily each year, culminating at 8.33% in 2017. This indicates significantly improved profitability relative to the company’s asset base.
Four-Component Disaggregation of ROA
Express Scripts Holding Co., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | × | × | |||||
| Dec 31, 2016 | = | × | × | × | |||||
| Dec 31, 2015 | = | × | × | × | |||||
| Dec 31, 2014 | = | × | × | × | |||||
| Dec 31, 2013 | = | × | × | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Tax Burden
- The tax burden ratio shows an overall increasing trend from 0.63 in 2013 to 0.92 in 2017. This indicates a rising proportion of earnings being retained after tax over the period, suggesting improved tax efficiency or lower effective tax rates in the later years.
- Interest Burden
- The interest burden ratio remains relatively stable with slight fluctuations, beginning at 0.83 in 2013 and ending at 0.89 in 2017. This slight improvement suggests marginally better management of interest expenses relative to earnings before interest and taxes (EBIT) across the years.
- EBIT Margin
- The EBIT margin demonstrates a consistent upward trend from 3.41% in 2013 to 5.52% in 2017. This signifies improving operational profitability and greater efficiency in generating earnings from core business activities over the period.
- Asset Turnover
- Asset turnover remains relatively stable with minor variations, starting at 1.94 in 2013 and closing at 1.84 in 2017. Despite slight decreases in some years, the company maintained a fairly consistent level of sales generated per unit of assets, indicating steady asset utilization.
- Return on Assets (ROA)
- The return on assets displays a strong positive trend, rising from 3.44% in 2013 to 8.33% in 2017. This substantial increase reflects enhanced overall efficiency in generating profits from the company's asset base, likely driven by improved profitability and tax management while maintaining stable asset turnover.
Disaggregation of Net Profit Margin
Express Scripts Holding Co., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Tax Burden
- The tax burden ratio demonstrates an overall increasing trend from 0.63 in 2013 to 0.92 in 2017. This suggests that the company experienced a rising proportion of its earnings consumed by taxes over the analyzed period, with a notable acceleration between 2016 and 2017.
- Interest Burden
- The interest burden ratio shows a mild upward trend, moving from 0.83 in 2013 to 0.89 in 2017. Despite some minor fluctuations, the ratio remained relatively stable, indicating a consistent level of earnings retention after interest expenses over the years.
- EBIT Margin
- There is a clear upward progression in the EBIT margin, increasing from 3.41% in 2013 to 5.52% in 2017. This steady improvement highlights enhanced operational efficiency or profitability before interest and taxes, reflecting positively on the company's core earnings capacity.
- Net Profit Margin
- The net profit margin increases significantly from 1.77% in 2013 to 4.51% in 2017, exhibiting a strong positive trend. The escalation suggests improved net profitability, likely driven by better cost management, higher revenues, or favorable financing and tax conditions. The growth between 2015 and 2017 is particularly marked, indicating enhanced bottom-line performance in the latter years.