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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- Statement of Comprehensive Income
- Common-Size Income Statement
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
- Analysis of Revenues
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Two-Component Disaggregation of ROE
Lam Research Corp., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Jun 30, 2024 | = | × | |||
| Jun 25, 2023 | = | × | |||
| Jun 26, 2022 | = | × | |||
| Jun 27, 2021 | = | × | |||
| Jun 28, 2020 | = | × | |||
| Jun 30, 2019 | = | × |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).
- Return on Assets (ROA)
- The return on assets exhibited a fluctuating trend over the examined periods. Starting at 18.26% in mid-2019, it declined to 15.47% in mid-2020. From there, it increased significantly, reaching a peak of 26.78% in mid-2022. Subsequently, it decreased to 24.02% in mid-2023 and further declined to 20.42% by mid-2024. Overall, the ROA shows a pattern of initial decline followed by a strong recovery and a gradual downward adjustment in the most recent years.
- Financial Leverage
- Financial leverage ratios remained relatively stable over the period, fluctuating between 2.20 and 2.81. The leverage increased from 2.57 in mid-2019 to its highest point of 2.81 in mid-2020, then declined to 2.64 in 2021 and showed minor changes afterward, ending at 2.20 in mid-2024. This trend indicates a moderate decrease in the use of debt or financial leverage in recent years.
- Return on Equity (ROE)
- Return on equity followed a pattern similar to ROA but with more pronounced fluctuations due to changes in financial leverage and profitability. Starting at 46.89% in mid-2019, ROE declined to 43.53% in mid-2020 before sharply rising to a peak of 73.35% in mid-2022. After this peak, it dropped significantly to 54.94% in mid-2023 and further to 44.82% in mid-2024. This suggests considerable volatility but an overall downward trend after a peak performance period.
Three-Component Disaggregation of ROE
Lam Research Corp., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Jun 30, 2024 | = | × | × | ||||
| Jun 25, 2023 | = | × | × | ||||
| Jun 26, 2022 | = | × | × | ||||
| Jun 27, 2021 | = | × | × | ||||
| Jun 28, 2020 | = | × | × | ||||
| Jun 30, 2019 | = | × | × |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).
- Net Profit Margin
- The net profit margin remained relatively stable over the six-year period, fluctuating slightly between 22.4% and 26.7%. It showed a gradual increase from 22.7% in 2019 to a peak of 26.73% in 2022, before experiencing a modest decline to 25.68% in 2024. This suggests consistent profitability with a slight peak followed by a minor reduction in profit efficiency.
- Asset Turnover
- Asset turnover exhibited notable variability, starting at 0.8 in 2019, dipping to 0.69 in 2020, then rising to a high of 1.0 in 2022. Subsequently, it declined to 0.8 by 2024. This indicates periods of improved efficiency in utilizing assets to generate revenue, peaking in 2022, followed by a decrease that aligns with the 2019 starting point, implying cyclical asset use efficiency.
- Financial Leverage
- Financial leverage showed a moderate decline over the period. It increased from 2.57 in 2019 to 2.81 in 2020, then steadily decreased to 2.2 by 2024. This trend implies a gradual reduction in reliance on debt or borrowed funds relative to equity, reflecting a more conservative capital structure over time.
- Return on Equity (ROE)
- Return on equity displayed significant fluctuations. It started at 46.89% in 2019, dipped to 43.53% in 2020, then surged to a peak of 73.35% in 2022. Following this peak, ROE declined sharply, reaching 44.82% by 2024. The sharp increase and subsequent decrease suggest volatility in profitability relative to shareholders' equity, possibly driven by variations in profit margins, asset turnover, and financial leverage.
- Overall Interpretation
- The data reflect a company maintaining relatively high profitability margins with some fluctuations in asset efficiency and a trend towards lower financial leverage. The most notable variation is observable in the return on equity, highlighting changing effectiveness in generating returns for equity holders influenced by shifts in profit margins, asset turnover, and leverage. These patterns suggest phases of operational optimization followed by normalization periods.
Five-Component Disaggregation of ROE
Lam Research Corp., decomposition of ROE
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).
- Tax Burden
- The tax burden ratio has shown a slight decline over the analyzed periods, decreasing from 0.9 in 2019 to 0.88 in 2023 and maintaining this level through 2024. This indicates a relatively stable but marginally improving effective tax rate impacting net profitability.
- Interest Burden
- The interest burden ratio remains relatively stable, fluctuating narrowly between 0.94 and 0.97 across the years. The highest value was recorded in 2022 at 0.97, suggesting a slight improvement in coverage of interest expenses by operating income, with consistent performance thereafter.
- EBIT Margin
- EBIT margin experienced an upward trend from 26.56% in 2019 to peak at 31.31% in 2021, followed by a slight decrease, stabilizing around 30.5% by 2024. This pattern reflects improved operational efficiency up to 2021, with successful retention of profitability levels in subsequent years despite minor declines.
- Asset Turnover
- Asset turnover displayed variability over the period. It decreased from 0.8 in 2019 to a low of 0.69 in 2020, then sharply increased to a peak of 1.0 in 2022. Subsequently, it declined to 0.8 by 2024. This suggests fluctuations in the efficiency with which the company utilized its assets to generate sales, showing notable improvement followed by regression to initial levels.
- Financial Leverage
- Financial leverage ratios varied, starting at 2.57 in 2019, reaching a high of 2.81 in 2020, then generally declining to 2.2 by 2024. This indicates a reduction in the use of debt relative to equity over time, reflecting a more conservative capital structure in recent periods.
- Return on Equity (ROE)
- Return on equity showed significant fluctuations, increasing from 46.89% in 2019 to a peak of 73.35% in 2022, before declining to 44.82% by 2024. The peak aligns with the highest EBIT margin and asset turnover, suggesting enhanced overall profitability and efficient use of equity during that period. The subsequent decline may be influenced by the decreased financial leverage and asset turnover, impacting net returns to shareholders.
Two-Component Disaggregation of ROA
Lam Research Corp., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Jun 30, 2024 | = | × | |||
| Jun 25, 2023 | = | × | |||
| Jun 26, 2022 | = | × | |||
| Jun 27, 2021 | = | × | |||
| Jun 28, 2020 | = | × | |||
| Jun 30, 2019 | = | × |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).
- Net Profit Margin
- The net profit margin exhibited a generally stable trend over the analyzed periods. Starting at 22.7% in mid-2019, it experienced a slight decrease to 22.42% in mid-2020. Subsequently, there was a noticeable increase reaching a peak of 26.73% by mid-2022. After this peak, the margin slightly declined but remained relatively high, ending at 25.68% by mid-2024. This indicates that the company maintained a strong ability to convert revenue into profit, with only minor fluctuations in profitability efficiency.
- Asset Turnover
- The asset turnover ratio showed considerable variability across the periods. It began at 0.8 in 2019 and declined to a low of 0.69 in 2020, suggesting a decrease in efficiency in using assets to generate sales. However, this was followed by an improvement, with the ratio rising to 1 in 2022, indicating peak efficiency in asset utilization during that year. After this peak, the asset turnover decreased again to 0.8 by 2024, reverting to the initial level, which could reflect changes in asset management or sales generation effectiveness over time.
- Return on Assets (ROA)
- The ROA trend demonstrates fluctuations consistent with changes in both profitability and asset efficiency. Starting at 18.26% in 2019, it dropped to 15.47% in 2020, aligning with the observed dip in asset turnover. The ROA then increased significantly to 26.78% by 2022, reflecting a period of enhanced profitability and asset use. Following this peak, ROA declined to 20.42% in 2024, still above initial levels but indicating a reduction in overall asset profitability relative to the earlier high. This pattern suggests variability in the company’s efficiency in generating returns from its asset base.
- Overall Insights
- The financial metrics reveal that while profitability margins have remained relatively robust with minor declines from peak values, asset utilization efficiency has been more volatile. The peak performance in asset turnover and ROA in 2022 corresponds with the highest net profit margin, portraying that year as the period of optimal operational effectiveness. The subsequent declines in asset turnover and ROA, but sustained profit margins, may indicate strategic shifts in asset investment or sales strategies that affected efficiency but not significantly profitability. Monitoring the causes of these fluctuations could provide opportunities for improving asset management and sustaining profitability.
Four-Component Disaggregation of ROA
Lam Research Corp., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Jun 30, 2024 | = | × | × | × | |||||
| Jun 25, 2023 | = | × | × | × | |||||
| Jun 26, 2022 | = | × | × | × | |||||
| Jun 27, 2021 | = | × | × | × | |||||
| Jun 28, 2020 | = | × | × | × | |||||
| Jun 30, 2019 | = | × | × | × |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).
- Tax Burden
- The tax burden ratio has exhibited a slight decline over the observed periods, decreasing from 0.90 in 2019 to a stable level around 0.88 from 2020 onwards. This suggests a modest increase in the effective tax rate impacting the profitability after taxes.
- Interest Burden
- Interest burden values remained relatively stable throughout the timeline, fluctuating slightly between 0.94 and 0.97. This indicates consistent management of interest expenses relative to earnings before interest and taxes, with no significant change in financial leverage cost.
- EBIT Margin
- The EBIT margin showed an upward trend from 26.56% in 2019 to a peak of 31.31% in 2021. After stabilizing around 31% in 2022, it decreased slightly to approximately 30.4%-30.5% in the last two years. Overall, this reflects improved operational efficiency and profitability, with a mild recent contraction.
- Asset Turnover
- Asset turnover experienced notable fluctuations: starting at 0.80 in 2019, it dropped to 0.69 in 2020, surged to 1.00 in 2022, then declined again to 0.80 by 2024. These variations imply changes in the company's ability to generate revenue from its asset base, showing periods of both efficiency gains and declines.
- Return on Assets (ROA)
- The return on assets mirrored patterns observed in EBIT margin and asset turnover, with a dip from 18.26% in 2019 to 15.47% in 2020, followed by a strong recovery peaking at 26.78% in 2022. Subsequently, ROA declined to 20.42% in 2024. This indicates that asset profitability improved significantly after 2020 but faced some erosion in recent years, potentially influenced by decreasing asset turnover.
Disaggregation of Net Profit Margin
Lam Research Corp., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Jun 30, 2024 | = | × | × | ||||
| Jun 25, 2023 | = | × | × | ||||
| Jun 26, 2022 | = | × | × | ||||
| Jun 27, 2021 | = | × | × | ||||
| Jun 28, 2020 | = | × | × | ||||
| Jun 30, 2019 | = | × | × |
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).
- Tax Burden
- The tax burden ratio has demonstrated slight fluctuations over the analyzed periods. It decreased from 0.90 in mid-2019 to 0.87 in 2020, indicating a marginal increase in tax expense relative to pretax income, then stabilized around 0.88 from 2022 through 2024. This suggests relatively consistent tax efficiency in recent years.
- Interest Burden
- This ratio remained fairly stable, hovering between 0.94 and 0.97 across the six-year span. The highest value of 0.97 was observed in 2022, indicating a slightly reduced impact of interest expenses on earnings before taxes, while slightly lower values in other years show consistent, manageable interest costs relative to operating income.
- EBIT Margin
- The EBIT margin displayed a general upward trend from 26.56% in 2019 to a peak of 31.31% in 2021. Margins then slightly declined to 30.39% in 2023 but recovered modestly to 30.5% in 2024. This pattern indicates improvements in operational efficiency or pricing power through 2021, followed by a small contraction, with margins remaining robust overall.
- Net Profit Margin
- Net profit margins increased significantly from 22.7% in 2019 to 26.72% in 2021, suggesting enhanced profitability possibly due to improved operational leverage or cost management. Following this peak, margins experienced a slight decrease to 25.68% in 2024. Despite this decline, net profitability remained strong and well above the 2019 level.