Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
Return on Sales
Return on Investment
PayPal Holdings Inc., profitability ratios
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).
The financial data indicates a cyclical trend in profitability, with a distinct peak in performance occurring between 2020 and 2021, followed by a comprehensive decline across all profitability ratios in 2022. The contraction in 2022 is particularly evident in the net profit margin and return metrics, which fell below 2018 baseline levels.
- Operating and Net Profit Margins
- Operating margins expanded gradually from 14.20% in 2018 to 16.80% in 2021, suggesting improved operational efficiency during that period. However, this trend reversed in 2022, with the margin falling to 13.94%. The net profit margin demonstrated more extreme fluctuations, peaking at 19.59% in 2020 before plummeting to 8.79% in 2022, signifying a substantial reduction in bottom-line profitability relative to revenue.
- Return on Equity (ROE)
- The return on equity peaked at 20.99% in 2020, representing a period of high capital efficiency. This figure declined to 19.19% in 2021 and dropped precipitously to 11.93% in 2022, indicating a marked decrease in the return generated on invested shareholder capital.
- Return on Assets (ROA)
- Asset utilization improved from 4.75% in 2018 to a high of 5.97% in 2020. A consistent decline followed, with ROA reaching 3.07% in 2022, the lowest point in the five-year analysis, highlighting a diminished capacity to translate assets into net earnings.
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Operating Profit Margin
PayPal Holdings Inc., operating profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Operating income | 3,837) | 4,262) | 3,289) | 2,719) | 2,194) | |
| Net revenues | 27,518) | 25,371) | 21,454) | 17,772) | 15,451) | |
| Profitability Ratio | ||||||
| Operating profit margin1 | 13.94% | 16.80% | 15.33% | 15.30% | 14.20% | |
| Benchmarks | ||||||
| Operating Profit Margin, Competitors2 | ||||||
| Accenture PLC | 15.21% | 15.08% | — | — | — | |
| Adobe Inc. | 34.64% | 36.76% | 32.93% | — | — | |
| AppLovin Corp. | -1.70% | 5.37% | — | — | — | |
| Cadence Design Systems Inc. | 30.15% | 26.07% | — | — | — | |
| Datadog Inc. | -3.50% | -1.86% | — | — | — | |
| International Business Machines Corp. | 13.50% | 11.97% | — | — | — | |
| Intuit Inc. | 20.20% | 25.95% | — | — | — | |
| Microsoft Corp. | 42.06% | 41.59% | — | — | — | |
| Oracle Corp. | 25.74% | 37.58% | — | — | — | |
| Palantir Technologies Inc. | -8.46% | -26.66% | — | — | — | |
| Palo Alto Networks Inc. | -3.43% | -7.15% | — | — | — | |
| Salesforce Inc. | 2.07% | 2.14% | — | — | — | |
| ServiceNow Inc. | 4.90% | 4.36% | — | — | — | |
| Synopsys Inc. | 22.87% | 17.48% | 16.83% | — | — | |
| Workday Inc. | -2.27% | -5.76% | — | — | — | |
| Operating Profit Margin, Sector | ||||||
| Software & Services | 27.20% | 28.02% | — | — | — | |
| Operating Profit Margin, Industry | ||||||
| Information Technology | 26.23% | 26.58% | — | — | — | |
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).
1 2022 Calculation
Operating profit margin = 100 × Operating income ÷ Net revenues
= 100 × 3,837 ÷ 27,518 = 13.94%
2 Click competitor name to see calculations.
The operating performance from 2018 to 2022 exhibits a period of steady expansion followed by a contraction in efficiency during the final year. While net revenues maintained a consistent upward trajectory throughout the period, operating income and profit margins peaked in 2021 before experiencing a decline in 2022.
- Revenue Growth
- Net revenues increased consistently each year, rising from US$ 15,451 million in 2018 to US$ 27,518 million in 2022. This indicates sustained top-line growth across the five-year window.
- Operating Income Trends
- Operating income grew steadily from US$ 2,194 million in 2018 to a peak of US$ 4,262 million in 2021. However, a reversal occurred in 2022, where operating income decreased to US$ 3,837 million despite the continued growth in net revenues.
- Operating Profit Margin Analysis
- The operating profit margin improved from 14.20% in 2018 to a maximum of 16.80% in 2021. In 2022, the margin fell to 13.94%, marking the lowest point in the analyzed period. This contraction suggests that operating expenses increased at a rate that exceeded revenue growth during the final year, leading to diminished operational efficiency.
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Net Profit Margin
PayPal Holdings Inc., net profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,419) | 4,169) | 4,202) | 2,459) | 2,057) | |
| Net revenues | 27,518) | 25,371) | 21,454) | 17,772) | 15,451) | |
| Profitability Ratio | ||||||
| Net profit margin1 | 8.79% | 16.43% | 19.59% | 13.84% | 13.31% | |
| Benchmarks | ||||||
| Net Profit Margin, Competitors2 | ||||||
| Accenture PLC | 11.17% | 11.69% | — | — | — | |
| Adobe Inc. | 27.01% | 30.55% | 40.88% | — | — | |
| AppLovin Corp. | -6.84% | 1.27% | — | — | — | |
| Cadence Design Systems Inc. | 23.84% | 23.29% | — | — | — | |
| Datadog Inc. | -2.99% | -2.02% | — | — | — | |
| International Business Machines Corp. | 2.71% | 10.01% | — | — | — | |
| Intuit Inc. | 16.23% | 21.41% | — | — | — | |
| Microsoft Corp. | 36.69% | 36.45% | — | — | — | |
| Oracle Corp. | 15.83% | 33.96% | — | — | — | |
| Palantir Technologies Inc. | -19.61% | -33.75% | — | — | — | |
| Palo Alto Networks Inc. | -4.85% | -11.72% | — | — | — | |
| Salesforce Inc. | 5.45% | 19.16% | — | — | — | |
| ServiceNow Inc. | 4.49% | 3.90% | — | — | — | |
| Synopsys Inc. | 19.38% | 18.02% | 18.03% | — | — | |
| Workday Inc. | 0.57% | -6.54% | — | — | — | |
| Net Profit Margin, Sector | ||||||
| Software & Services | 21.55% | 25.12% | — | — | — | |
| Net Profit Margin, Industry | ||||||
| Information Technology | 22.27% | 23.48% | — | — | — | |
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).
1 2022 Calculation
Net profit margin = 100 × Net income ÷ Net revenues
= 100 × 2,419 ÷ 27,518 = 8.79%
2 Click competitor name to see calculations.
The financial performance between 2018 and 2022 reveals a divergence between top-line growth and bottom-line profitability.
- Revenue Growth
- Net revenues increased steadily every year, rising from US$ 15,451 million in 2018 to US$ 27,518 million by the end of 2022, demonstrating a consistent expansion in the scale of operations.
- Net Income Trends
- Net income showed significant volatility, peaking at US$ 4,202 million in 2020 before experiencing a sharp reduction to US$ 2,419 million in 2022. This decline occurred despite the continued increase in net revenues.
- Net Profit Margin Analysis
- The net profit margin trend exhibits a bell-shaped trajectory over the period. The margin improved from 13.31% in 2018 to a high of 19.59% in 2020. Subsequently, the margin declined to 16.43% in 2021 and fell sharply to 8.79% in 2022. The substantial compression of the margin in the final year indicates a marked decrease in the ability to convert revenue into actual profit, signaling a potential increase in operating costs or non-operating expenses.
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Return on Equity (ROE)
PayPal Holdings Inc., ROE calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,419) | 4,169) | 4,202) | 2,459) | 2,057) | |
| Total PayPal stockholders’ equity | 20,274) | 21,727) | 20,019) | 16,885) | 15,386) | |
| Profitability Ratio | ||||||
| ROE1 | 11.93% | 19.19% | 20.99% | 14.56% | 13.37% | |
| Benchmarks | ||||||
| ROE, Competitors2 | ||||||
| Accenture PLC | 31.11% | 30.25% | — | — | — | |
| Adobe Inc. | 33.85% | 32.59% | 39.66% | — | — | |
| AppLovin Corp. | -10.13% | 1.66% | — | — | — | |
| Cadence Design Systems Inc. | 30.93% | 25.39% | — | — | — | |
| Datadog Inc. | -3.56% | -1.99% | — | — | — | |
| International Business Machines Corp. | 7.47% | 30.38% | — | — | — | |
| Intuit Inc. | 12.57% | 20.89% | — | — | — | |
| Microsoft Corp. | 43.68% | 43.15% | — | — | — | |
| Oracle Corp. | — | 262.43% | — | — | — | |
| Palantir Technologies Inc. | -14.57% | -22.71% | — | — | — | |
| Palo Alto Networks Inc. | -127.14% | -78.63% | — | — | — | |
| Salesforce Inc. | 2.48% | 9.81% | — | — | — | |
| ServiceNow Inc. | 6.46% | 6.22% | — | — | — | |
| Synopsys Inc. | 17.85% | 14.31% | 13.54% | — | — | |
| Workday Inc. | 0.65% | -8.62% | — | — | — | |
| ROE, Sector | ||||||
| Software & Services | 30.78% | 35.91% | — | — | — | |
| ROE, Industry | ||||||
| Information Technology | 38.03% | 41.64% | — | — | — | |
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).
1 2022 Calculation
ROE = 100 × Net income ÷ Total PayPal stockholders’ equity
= 100 × 2,419 ÷ 20,274 = 11.93%
2 Click competitor name to see calculations.
The analysis of profitability over the five-year period ending December 31, 2022, reveals a cyclical trend in the Return on Equity (ROE), characterized by a period of significant expansion peaking in 2020 followed by a substantial contraction in 2022.
- Net Income Volatility
- Net income demonstrated a strong upward trajectory between 2018 and 2020, increasing from US$ 2,057 million to a peak of US$ 4,202 million. While this level remained relatively stable in 2021 at US$ 4,169 million, a sharp decline was observed in 2022, with net income falling to US$ 2,419 million.
- Equity Growth and Contraction
- Total stockholders' equity exhibited consistent growth for the majority of the period, rising from US$ 15,386 million in 2018 to a peak of US$ 21,727 million in 2021. A moderate reduction occurred in 2022, with equity declining to US$ 20,274 million.
- Return on Equity (ROE) Interpretation
- The ROE trend closely mirrors the fluctuations in net income. Efficiency in generating profit from equity improved from 13.37% in 2018 to a high of 20.99% in 2020. After a slight dip to 19.19% in 2021, the ROE decreased sharply to 11.93% in 2022. This final value represents the lowest return of the five-year period, indicating a significant decline in the effectiveness of equity utilization relative to the 2018 baseline.
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Return on Assets (ROA)
PayPal Holdings Inc., ROA calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,419) | 4,169) | 4,202) | 2,459) | 2,057) | |
| Total assets | 78,717) | 75,803) | 70,379) | 51,333) | 43,332) | |
| Profitability Ratio | ||||||
| ROA1 | 3.07% | 5.50% | 5.97% | 4.79% | 4.75% | |
| Benchmarks | ||||||
| ROA, Competitors2 | ||||||
| Accenture PLC | 14.55% | 13.68% | — | — | — | |
| Adobe Inc. | 17.51% | 17.70% | 21.66% | — | — | |
| AppLovin Corp. | -3.30% | 0.58% | — | — | — | |
| Cadence Design Systems Inc. | 16.53% | 15.87% | — | — | — | |
| Datadog Inc. | -1.67% | -0.87% | — | — | — | |
| International Business Machines Corp. | 1.29% | 4.35% | — | — | — | |
| Intuit Inc. | 7.45% | 13.29% | — | — | — | |
| Microsoft Corp. | 19.94% | 18.36% | — | — | — | |
| Oracle Corp. | 6.15% | 10.48% | — | — | — | |
| Palantir Technologies Inc. | -10.80% | -16.02% | — | — | — | |
| Palo Alto Networks Inc. | -2.18% | -4.87% | — | — | — | |
| Salesforce Inc. | 1.52% | 6.14% | — | — | — | |
| ServiceNow Inc. | 2.44% | 2.13% | — | — | — | |
| Synopsys Inc. | 10.45% | 8.66% | 8.27% | — | — | |
| Workday Inc. | 0.28% | -3.24% | — | — | — | |
| ROA, Sector | ||||||
| Software & Services | 11.32% | 12.19% | — | — | — | |
| ROA, Industry | ||||||
| Information Technology | 14.33% | 14.52% | — | — | — | |
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).
1 2022 Calculation
ROA = 100 × Net income ÷ Total assets
= 100 × 2,419 ÷ 78,717 = 3.07%
2 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by a sustained expansion of the asset base coupled with significant volatility in net income, which resulted in a fluctuating Return on Assets (ROA). While a period of heightened profitability peaked in 2020, a substantial contraction in earnings occurred by the end of 2022, leading to a decline in asset utilization efficiency.
- Asset Expansion Trend
- Total assets demonstrated consistent year-over-year growth, increasing from US$ 43,332 million in 2018 to US$ 78,717 million in 2022. This represents a steady enlargement of the balance sheet throughout the analyzed period.
- Net Income Volatility
- Net income experienced a sharp increase between 2018 and 2020, rising from US$ 2,057 million to a peak of US$ 4,202 million. Following a period of relative stability in 2021, net income declined significantly in 2022 to US$ 2,419 million, returning to levels similar to those seen in 2019 despite a much larger asset base.
- ROA Dynamics
- The Return on Assets remained stable between 4.75% and 4.79% from 2018 to 2019, before reaching a maximum of 5.97% in 2020. A subsequent downward trend was observed, with the ratio falling to 5.50% in 2021 and dropping sharply to 3.07% in 2022. This decline suggests that the growth in total assets was not matched by a corresponding increase in profitability in the latter years of the period.
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