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
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- 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
Microchip Technology Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Mar 31, 2022 | = | × | |||
| Mar 31, 2021 | = | × | |||
| Mar 31, 2020 | = | × | |||
| Mar 31, 2019 | = | × | |||
| Mar 31, 2018 | = | × | |||
| Mar 31, 2017 | = | × |
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
- Return on Assets (ROA)
- The ROA exhibits variability over the analyzed years, starting at 2.14% in 2017 and increasing to 3.09% in 2018. There is a decline to 1.94% in 2019, followed by a significant rise to 3.27% in 2020, then a decrease again to 2.12% in 2021. The most notable increase occurs in 2022, where the ROA reaches 7.94%, indicating a considerable improvement in the company’s ability to generate profit from its assets.
- Financial Leverage
- Financial leverage shows a generally increasing trend from 2.35 in 2017 to a peak of 3.47 in 2019, implying a growing use of debt financing. Following this peak, leverage decreases slightly to 3.12 in 2020, 3.09 in 2021, and further down to 2.75 in 2022. This reduction suggests a modest deleveraging or more conservative capital structure management in recent years.
- Return on Equity (ROE)
- ROE fluctuates over the given period, beginning at 5.03% in 2017 and rising to 7.79% in 2018. It then declines to 6.73% in 2019, before reaching a higher level of 10.22% in 2020. The metric decreases again to 6.55% in 2021, followed by a substantial increase to 21.81% in 2022. This significant growth in 2022 reflects a marked enhancement in profitability relative to shareholders’ equity, consistent with changes in both ROA and financial leverage.
- Summary Insights
- The company demonstrates notable volatility in profitability ratios across the six-year period. The sharp increase in ROA and ROE in 2022, coupled with a reduction in financial leverage, indicates improved asset efficiency and equity returns potentially driven by operational improvements or favorable market conditions. The prior years show cyclical performance with fluctuating returns and increasing leverage until 2019, followed by a gradual deleveraging trend. Overall, the data suggests recent strengthening in financial performance and capital structure management.
Three-Component Disaggregation of ROE
Microchip Technology Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Mar 31, 2022 | = | × | × | ||||
| Mar 31, 2021 | = | × | × | ||||
| Mar 31, 2020 | = | × | × | ||||
| Mar 31, 2019 | = | × | × | ||||
| Mar 31, 2018 | = | × | × | ||||
| Mar 31, 2017 | = | × | × |
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
- Net Profit Margin
- The net profit margin demonstrated a generally positive trend over the period. Beginning at 4.83% in 2017, it increased to 6.42% in 2018 and 6.65% in 2019. A significant jump occurred in 2020, reaching 10.82%, followed by a decrease to 6.42% in 2021. The margin surged again in 2022, attaining the highest value of 18.85%, indicating improved profitability in the later years.
- Asset Turnover
- The asset turnover ratio showed variability throughout the timeline. It rose slightly from 0.44 in 2017 to 0.48 in 2018, then declined notably to 0.29 in 2019. The ratio remained relatively stable in 2020 at 0.30 before a moderate increase to 0.33 in 2021 and a more substantial recovery to 0.42 in 2022. This pattern suggests fluctuation in the efficiency with which assets were used to generate sales, with a partial rebound towards the end of the period.
- Financial Leverage
- Financial leverage increased from 2.35 in 2017 to a peak of 3.47 in 2019, indicating a rising use of debt or liabilities relative to equity during that period. It then declined gradually to 3.12 in 2020, 3.09 in 2021, and further to 2.75 in 2022. This decline signals a reduction in leverage exposure in recent years, potentially reflecting risk management or deleveraging efforts.
- Return on Equity (ROE)
- ROE followed a fluctuating but overall upward trajectory. Starting at 5.03% in 2017, it increased to a peak of 7.79% in 2018, then decreased to 6.73% in 2019. In 2020, ROE rose significantly to 10.22%, dropped again to 6.55% in 2021, and then experienced a sharp increase to the highest level of 21.81% in 2022. These movements highlight variable profitability and efficiency in generating returns for shareholders, with a notably strong performance in the final year.
Five-Component Disaggregation of ROE
Microchip Technology Inc., decomposition of ROE
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
- Tax Burden
- The tax burden ratio demonstrated significant fluctuations over the analyzed periods. It started at 1.96 in 2017, dropped sharply to 0.35 in 2018, then increased again reaching a peak of 3.79 in 2020. Subsequently, it decreased to near unity levels in 2021 and further dropped slightly to 0.87 in 2022. This volatility suggests varying effective tax rates which could be due to changes in taxable income or tax policies.
- Interest Burden
- The interest burden ratio showed variability with a low of 0.23 in 2020 and a gradual increase thereafter, reaching 0.85 in 2022. The ratio was highest initially in 2018 at 0.79, then declined sharply in 2019 and 2020. The recent rising trend could indicate increased interest expenses relative to earnings before interest and taxes, reflecting possible changes in debt structure or interest rates.
- EBIT Margin
- EBIT margin exhibited a pattern characterized by high volatility. After a modest 6.75% in 2017, there was a substantial increase to 23.52% in 2018, followed by a decline in the next two years stabilizing around 12-13%. In 2022, the margin surged again to 25.5%, representing a significant improvement in operating profitability compared to most prior years.
- Asset Turnover
- The asset turnover ratio fluctuated with an initial rise from 0.44 to 0.48 in 2018, followed by a notable decline to 0.29 in 2019 and relatively stable levels until 2021. In 2022, the ratio improved to 0.42, indicating enhanced efficiency in using assets to generate sales, which corresponds positively with the improved EBIT margin in the same year.
- Financial Leverage
- Financial leverage increased from 2.35 in 2017 to a peak of 3.47 in 2019, showing a trend towards greater reliance on debt or equity financing. After 2019, the leverage ratio consistently decreased, reaching 2.75 in 2022, suggesting a reduction in the extent of leverage and possibly an improved capital structure management over recent periods.
- Return on Equity (ROE)
- Return on equity demonstrated general growth with fluctuations that mirror the patterns observed in other ratios. After rising from 5.03% in 2017 to 7.79% in 2018, ROE experienced a decrease in subsequent years before sharply increasing to 21.81% in 2022. The 2022 ROE spike aligns with improvements in EBIT margin and asset turnover, indicating strong overall profitability and efficient use of equity capital.
Two-Component Disaggregation of ROA
Microchip Technology Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Mar 31, 2022 | = | × | |||
| Mar 31, 2021 | = | × | |||
| Mar 31, 2020 | = | × | |||
| Mar 31, 2019 | = | × | |||
| Mar 31, 2018 | = | × | |||
| Mar 31, 2017 | = | × |
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
- Net Profit Margin
- The net profit margin demonstrates notable fluctuations over the analyzed period. Starting at 4.83% in 2017, there was a consistent upward trend reaching 6.65% by 2019. A significant increase was observed in 2020, where the margin peaked at 10.82%, followed by a decline to 6.42% in 2021. The latest figure in 2022 shows a substantial rise to 18.85%, indicating a marked improvement in profitability relative to revenue.
- Asset Turnover
- Asset turnover exhibited variability throughout the years, beginning at 0.44 in 2017 and rising slightly to 0.48 in 2018. A decline occurred in 2019 and 2020 with values around 0.29 to 0.3, followed by a gradual recovery to 0.33 in 2021 and a more pronounced increase to 0.42 in 2022. This pattern suggests fluctuating efficiency in generating sales from assets, with a recent positive trend toward better asset utilization.
- Return on Assets (ROA)
- Return on assets followed an inconsistent trajectory between 2017 and 2022. The ratio began at 2.14% in 2017, improved to 3.09% in 2018, then declined sharply to 1.94% in 2019. A recovery phase ensued in 2020 at 3.27%, but this was followed by a decrease to 2.12% in 2021. The year 2022 saw a dramatic increase to 7.94%, highlighting enhanced overall asset profitability in the most recent period. The volatility in ROA corresponds partly with changes in both profit margin and asset turnover, reflecting shifts in operational efficiency and profitability.
Four-Component Disaggregation of ROA
Microchip Technology Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Mar 31, 2022 | = | × | × | × | |||||
| Mar 31, 2021 | = | × | × | × | |||||
| Mar 31, 2020 | = | × | × | × | |||||
| Mar 31, 2019 | = | × | × | × | |||||
| Mar 31, 2018 | = | × | × | × | |||||
| Mar 31, 2017 | = | × | × | × |
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
- Tax Burden
- The tax burden ratio exhibited considerable volatility over the observed periods. It started at 1.96 in 2017, sharply dropped to 0.35 in 2018, then rose again to 1.74 in 2019. Subsequently, it peaked at 3.79 in 2020 before declining to 1.03 in 2021 and further to 0.87 in 2022. This fluctuation indicates inconsistent tax impacts on earnings across the years.
- Interest Burden
- The interest burden ratio showed a mixed trend throughout the years. It began at a relatively low level of 0.36 in 2017, increased substantially to 0.79 in 2018, dropped significantly to 0.29 in 2019, and reached its lowest point of 0.23 in 2020. Afterward, it rose again to 0.49 in 2021 and climbed to 0.85 in 2022, suggesting varying levels of interest expense relative to operating income during the period.
- EBIT Margin
- The EBIT margin percentage demonstrated notable fluctuations and an overall upward trend towards the end of the period. After a modest 6.75% in 2017, it surged to 23.52% in 2018, then declined to 13.22% in 2019 and further to 12.28% in 2020. It showed slight improvement to 12.81% in 2021 before sharply increasing to 25.5% in 2022, signaling increased operational profitability in recent years.
- Asset Turnover
- Asset turnover ratio displayed a relatively stable but modest downward trend until a recovery in the last year. It started at 0.44 in 2017, marginally increased to 0.48 in 2018, then declined to 0.29 in 2019 and stayed around 0.3 through 2020 and 0.33 in 2021. The ratio rebounded to 0.42 in 2022, suggesting improved efficiency in using assets to generate revenue in the most recent period.
- Return on Assets (ROA)
- The ROA percentage experienced fluctuations with an overall upward trajectory towards the end. Initially, it was 2.14% in 2017, increased to 3.09% in 2018, then dropped to 1.94% in 2019 before rising to 3.27% in 2020. It decreased again to 2.12% in 2021, followed by a significant increase to 7.94% in 2022. This pattern indicates improving overall asset profitability, particularly marked in the last year.
Disaggregation of Net Profit Margin
Microchip Technology Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Mar 31, 2022 | = | × | × | ||||
| Mar 31, 2021 | = | × | × | ||||
| Mar 31, 2020 | = | × | × | ||||
| Mar 31, 2019 | = | × | × | ||||
| Mar 31, 2018 | = | × | × | ||||
| Mar 31, 2017 | = | × | × |
Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).
- Tax Burden
- The tax burden ratio exhibits significant fluctuations over the analyzed period. Starting at 1.96 in 2017, it sharply declines to 0.35 in 2018, increases again to 1.74 in 2019, and peaks at 3.79 in 2020. Subsequently, it decreases to 1.03 in 2021 and further to 0.87 in 2022. This volatility suggests varying tax impacts relative to earnings before tax across the years.
- Interest Burden
- The interest burden ratio shows considerable variation as well. It begins at 0.36 in 2017, improves markedly to 0.79 in 2018, then declines to 0.29 in 2019 and further to 0.23 in 2020, indicating reduced interest expense relative to EBIT in these years. The ratio rebounds to 0.49 in 2021 and peaks at 0.85 in 2022, suggesting increasing interest costs in the latter years.
- EBIT Margin
- The EBIT margin percentage depicts a generally positive trend with some fluctuations. Starting at a low 6.75% in 2017, it significantly rises to 23.52% in 2018, before dropping to 13.22% in 2019 and slightly decreasing to 12.28% in 2020. The margin stabilizes at 12.81% in 2021 and then substantially increases to 25.5% in 2022, indicating improved operating profitability especially in the most recent year.
- Net Profit Margin
- The net profit margin shows an overall upward movement with moderate fluctuations. Beginning at 4.83% in 2017, it rises to 6.42% in 2018 and slightly increases to 6.65% in 2019. A notable jump to 10.82% occurs in 2020, followed by a decline back to 6.42% in 2021. In 2022, the margin nearly triples from the previous year to 18.85%, reflecting significant improvement in bottom-line profitability.