Stock Analysis on Net
Stock Analysis on Net

PayPal Holdings Inc. (NASDAQ:PYPL)

This company has been moved to the archive! The financial data has not been updated since May 9, 2023.

DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin 

Microsoft Excel

Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.

Two-Component Disaggregation of ROE

PayPal Holdings Inc., decomposition of ROE

Microsoft Excel
ROE = ROA × Financial Leverage
Dec 31, 2022 11.93% = 3.07% × 3.88
Dec 31, 2021 19.19% = 5.50% × 3.49
Dec 31, 2020 20.99% = 5.97% × 3.52
Dec 31, 2019 14.56% = 4.79% × 3.04
Dec 31, 2018 13.37% = 4.75% × 2.82

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Return on Assets (ROA)
The Return on Assets exhibited an overall increasing trend from 4.75% in 2018 to a peak of 5.97% in 2020, indicating improved efficiency in asset utilization during this period. However, this was followed by a slight decline to 5.5% in 2021 and a more pronounced decrease to 3.07% in 2022, suggesting a reduction in asset profitability in the most recent year.
Financial Leverage
The Financial Leverage ratio showed a consistent upward trend over the five-year period. Starting at 2.82 in 2018, the ratio increased each year, reaching 3.88 in 2022. This rise indicates a growing reliance on debt financing relative to equity, which could imply increased financial risk or capital structure adjustments.
Return on Equity (ROE)
Return on Equity improved substantially from 13.37% in 2018 to a high of 20.99% in 2020, reflecting enhanced profitability for shareholders. This was followed by a slight decrease to 19.19% in 2021 and a more significant drop to 11.93% in 2022. The decline in ROE in the latest year aligns with the reduced ROA and increased financial leverage, suggesting that the firm's profitability and efficiency in generating returns from equity have been negatively affected recently.

Three-Component Disaggregation of ROE

PayPal Holdings Inc., decomposition of ROE

Microsoft Excel
ROE = Net Profit Margin × Asset Turnover × Financial Leverage
Dec 31, 2022 11.93% = 8.79% × 0.35 × 3.88
Dec 31, 2021 19.19% = 16.43% × 0.33 × 3.49
Dec 31, 2020 20.99% = 19.59% × 0.30 × 3.52
Dec 31, 2019 14.56% = 13.84% × 0.35 × 3.04
Dec 31, 2018 13.37% = 13.31% × 0.36 × 2.82

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Net Profit Margin
The net profit margin exhibited an overall upward trend from 13.31% in 2018, peaking at 19.59% in 2020. Following this peak, the margin declined to 16.43% in 2021 and experienced a more significant decrease to 8.79% in 2022, indicating reduced profitability relative to revenue in the most recent year.
Asset Turnover
Asset turnover remained relatively stable over the period, starting at 0.36 in 2018 and slightly decreasing to 0.30 by 2020. It saw a moderate recovery to 0.33 in 2021 and further improvement to 0.35 in 2022, suggesting consistent efficiency in using assets to generate sales with only minor fluctuations.
Financial Leverage
Financial leverage progressively increased from 2.82 in 2018 to 3.88 by 2022. This steady rise indicates a growing reliance on debt or other liabilities to finance assets, which could imply higher financial risk but also potential for enhanced returns if managed properly.
Return on Equity (ROE)
ROE demonstrated significant growth from 13.37% in 2018 to a peak of 20.99% in 2020, reflecting improved profitability and efficient use of equity. However, it declined thereafter to 19.19% in 2021 and more sharply to 11.93% in 2022, mirroring the downward trend in net profit margin and suggesting a reduction in overall equity profitability.

Five-Component Disaggregation of ROE

PayPal Holdings Inc., decomposition of ROE

Microsoft Excel
ROE = Tax Burden × Interest Burden × EBIT Margin × Asset Turnover × Financial Leverage
Dec 31, 2022 11.93% = 0.72 × 0.92 × 13.34% × 0.35 × 3.88
Dec 31, 2021 19.19% = 1.02 × 0.95 × 17.07% × 0.33 × 3.49
Dec 31, 2020 20.99% = 0.83 × 0.96 × 24.58% × 0.30 × 3.52
Dec 31, 2019 14.56% = 0.82 × 0.96 × 17.52% × 0.35 × 3.04
Dec 31, 2018 13.37% = 0.87 × 0.97 × 15.88% × 0.36 × 2.82

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Tax Burden
The tax burden ratio experienced fluctuations throughout the observed periods, starting at 0.87 in 2018 and gradually decreasing to 0.82 in 2019 and 0.83 in 2020. It increased notably to 1.02 in 2021 before falling sharply to 0.72 in 2022. This pattern indicates variability in the effective tax rate impacting the company’s profitability over time.
Interest Burden
The interest burden remained relatively stable but showed a gradual decline, beginning at 0.97 in 2018 and decreasing steadily each year to 0.92 by 2022. This trend suggests a slight increase in interest expenses relative to earnings before interest and taxes, potentially influencing net income margins.
EBIT Margin
The EBIT margin demonstrated considerable variation, with a rise from 15.88% in 2018 to a peak of 24.58% in 2020. Subsequently, it dropped to 17.07% in 2021 and further decreased to 13.34% in 2022. The peak in 2020 indicates a period of heightened operational efficiency or profitability, followed by a weakening in operating income relative to revenue.
Asset Turnover
Asset turnover showed a slight declining trend from 0.36 in 2018 to a low of 0.30 in 2020, before recovering to 0.33 in 2021 and 0.35 in 2022. This pattern reflects modest fluctuations in how efficiently the company utilized its assets to generate revenue, with recovery towards the latter periods.
Financial Leverage
Financial leverage ratio increased consistently over the years, moving from 2.82 in 2018 to 3.88 in 2022. This upward trajectory implies an increased reliance on debt or other financial obligations, potentially amplifying both risk and return on equity.
Return on Equity (ROE)
ROE improved from 13.37% in 2018 to a peak of 20.99% in 2020, followed by a decline to 19.19% in 2021 and a more pronounced drop to 11.93% in 2022. This trend mirrors the EBIT margin and financial leverage shifts, indicating that despite increased leverage, overall profitability and efficiency declined in the most recent year.

Two-Component Disaggregation of ROA

PayPal Holdings Inc., decomposition of ROA

Microsoft Excel
ROA = Net Profit Margin × Asset Turnover
Dec 31, 2022 3.07% = 8.79% × 0.35
Dec 31, 2021 5.50% = 16.43% × 0.33
Dec 31, 2020 5.97% = 19.59% × 0.30
Dec 31, 2019 4.79% = 13.84% × 0.35
Dec 31, 2018 4.75% = 13.31% × 0.36

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Net Profit Margin
Over the five-year period, the net profit margin initially showed a positive trend, increasing from 13.31% in 2018 to a peak of 19.59% in 2020. This indicates improving profitability in those years. However, the margin declined thereafter, dropping to 16.43% in 2021 and further to 8.79% in 2022, suggesting a significant reduction in profitability in the most recent year.
Asset Turnover
Asset turnover remained relatively stable throughout the observed period, fluctuating within a narrow range. It started at 0.36 in 2018, slightly decreased to 0.30 in 2020, and then recovered back to 0.35 by 2022. This consistency indicates steady efficiency in utilizing assets to generate revenue, despite minor variations.
Return on Assets (ROA)
ROA followed a pattern similar to the net profit margin. It gained moderate improvements from 4.75% in 2018 to 5.97% in 2020, reflecting enhanced overall asset profitability. Subsequently, ROA declined to 5.5% in 2021 and dropped sharply to 3.07% in 2022. The decline in 2022 points to a decreased ability to generate profit from assets, aligning with the fall in net profit margin.

Four-Component Disaggregation of ROA

PayPal Holdings Inc., decomposition of ROA

Microsoft Excel
ROA = Tax Burden × Interest Burden × EBIT Margin × Asset Turnover
Dec 31, 2022 3.07% = 0.72 × 0.92 × 13.34% × 0.35
Dec 31, 2021 5.50% = 1.02 × 0.95 × 17.07% × 0.33
Dec 31, 2020 5.97% = 0.83 × 0.96 × 24.58% × 0.30
Dec 31, 2019 4.79% = 0.82 × 0.96 × 17.52% × 0.35
Dec 31, 2018 4.75% = 0.87 × 0.97 × 15.88% × 0.36

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Tax Burden
Over the analyzed period, the tax burden ratio exhibited fluctuations without a clear directional trend. It started at 0.87 in 2018, declined to 0.82 in 2019, slightly increased to 0.83 in 2020, peaked above 1.00 in 2021, and subsequently decreased notably to 0.72 in 2022. This variability suggests changes in the effective tax rate or tax strategies impacting net income differently across the years.
Interest Burden
The interest burden ratio shows a relatively stable trend with minor declines over the five years. Beginning at 0.97 in 2018, it gradually decreased to 0.92 by 2022. This indicates a modest increase in interest expenses relative to earnings before interest and taxes, but the overall impact remains limited.
EBIT Margin
The EBIT margin displayed significant variability throughout the period. From 15.88% in 2018, it increased to a peak of 24.58% in 2020, reflecting strong operational profitability that year. However, the margin then declined to 17.07% in 2021 and further to 13.34% in 2022, showing a downward trend in operating efficiency or increased operating costs in the latter years.
Asset Turnover
The asset turnover ratio remained relatively stable with slight fluctuations. Starting at 0.36 in 2018, it decreased to 0.30 in 2020, possibly indicating reduced efficiency in asset utilization to generate sales during that pandemic year. This ratio then recovered somewhat to 0.35 in 2022, nearing pre-2020 levels.
Return on Assets (ROA)
Return on assets followed a fluctuating pattern, increasing modestly from 4.75% in 2018 to a peak of 5.97% in 2020. Thereafter, ROA declined to 5.5% in 2021 and dropped substantially to 3.07% in 2022. The decline in the last two years may be attributed to lower operating margins and other factors affecting asset profitability.

Disaggregation of Net Profit Margin

PayPal Holdings Inc., decomposition of net profit margin ratio

Microsoft Excel
Net Profit Margin = Tax Burden × Interest Burden × EBIT Margin
Dec 31, 2022 8.79% = 0.72 × 0.92 × 13.34%
Dec 31, 2021 16.43% = 1.02 × 0.95 × 17.07%
Dec 31, 2020 19.59% = 0.83 × 0.96 × 24.58%
Dec 31, 2019 13.84% = 0.82 × 0.96 × 17.52%
Dec 31, 2018 13.31% = 0.87 × 0.97 × 15.88%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Tax Burden
The tax burden ratio exhibited fluctuation over the observed period. Starting at 0.87 in 2018, it decreased to 0.82 in 2019, remained relatively stable in 2020 at 0.83, then peaked to 1.02 in 2021, before significantly dropping to 0.72 in 2022. This variability indicates changes in tax efficiency, with 2021 reflecting a notable increase in tax-related expenses relative to pre-tax income.
Interest Burden
The interest burden showed a gradual decline from 0.97 in 2018 to 0.92 in 2022. This steady decrease suggests a slight increase in interest expenses or a reduction in operating earnings before interest, impacting the company's earnings before taxes negatively over time, though changes are relatively moderate.
EBIT Margin
EBIT margin demonstrated considerable volatility throughout the years. It rose from 15.88% in 2018 to a peak of 24.58% in 2020, indicating enhanced operational profitability. However, in subsequent years, the margin declined to 17.07% in 2021 and further to 13.34% in 2022, suggesting reduced operating efficiency or increased costs affecting earnings before interest and taxes.
Net Profit Margin
Net profit margin showed a similar pattern to EBIT margin, increasing steadily from 13.31% in 2018 to a high of 19.59% in 2020. This improvement reflects strong profitability growth during the early part of the period. However, profitability weakened in later years, decreasing to 16.43% in 2021 and sharply dropping to 8.79% in 2022. The decline points toward rising expenses, reduced revenues, or other factors adversely impacting net income after all costs.