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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- Income Statement
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
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Two-Component Disaggregation of ROE
Vertex Pharmaceuticals Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2024 | = | × | |||
| Dec 31, 2023 | = | × | |||
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Return on Assets (ROA)
- The return on assets exhibited a declining trend from 23.07% in 2020 to 15.92% in 2023, indicating a gradual decrease in the efficiency of asset utilization to generate profits over this period. In 2024, there was a significant drop to -2.38%, reflecting a loss relative to total assets and a potential deterioration in operational performance or asset profitability.
- Financial Leverage
- Financial leverage ratios remained relatively stable between 1.35 in 2020 and 1.29 in 2023, suggesting consistent use of debt relative to equity during these years. However, there was a slight increase to 1.37 in 2024, which may indicate increased reliance on debt financing or a change in capital structure in the most recent period.
- Return on Equity (ROE)
- Return on equity showed a downward pattern from 31.22% in 2020 to 20.59% in 2023, demonstrating a decreasing ability to generate profits from shareholders' equity. This trend aligns with the ROA movement, signaling overall declining profitability. In 2024, ROE turned negative at -3.26%, suggesting losses impacting shareholder value and possibly linked to the significant negative ROA recorded in the same year.
Three-Component Disaggregation of ROE
Vertex Pharmaceuticals Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2024 | = | × | × | ||||
| Dec 31, 2023 | = | × | × | ||||
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Net Profit Margin
- The net profit margin experienced a decline from 43.7% in 2020 to 30.92% in 2021, indicating a reduction in profitability relative to sales. It slightly recovered to 37.2% in 2022 and remained relatively stable at 36.68% in 2023. However, there was a significant downturn in 2024, with the margin dropping to -4.86%, suggesting a net loss situation in that year.
- Asset Turnover
- Asset turnover showed a fluctuating but generally decreasing trend across the period. It started at 0.53 in 2020, rose slightly to 0.56 in 2021, then declined to 0.49 in 2022 and further dropped to 0.43 in 2023. In 2024, it increased again to 0.49. This indicates variability in how efficiently assets are used to generate revenue, with a dip noticeable in the mid-period.
- Financial Leverage
- Financial leverage remained relatively stable, with minor fluctuations. It was 1.35 in 2020 and showed a slight downward trend reaching 1.29 in 2023, before increasing to 1.37 in 2024. The stability suggests consistent use of debt relative to equity, with no significant changes in the company’s capital structure over time.
- Return on Equity (ROE)
- Return on equity followed a downward trajectory, falling from 31.22% in 2020 to 23.19% in 2021, with a modest recovery to 23.88% in 2022. The metric declined again to 20.59% in 2023 and turned negative to -3.26% in 2024. This trend reflects decreasing profitability from shareholders’ equity and points to challenges in generating returns in the most recent period.
- Overall Analysis
- The financial data reveals a general decline in profitability and efficiency metrics, particularly in the last reported year. Both net profit margin and return on equity transitioned from strong positive levels to negative figures in 2024, indicating a deterioration in overall financial performance. Asset turnover showed some variability, with a notable decrease in the middle years but some recovery in the latest year. Financial leverage remained stable, suggesting the capital structure did not contribute significantly to the changes in profitability. These trends suggest that while the company maintained stable leverage and some asset efficiency, its profitability declined markedly by the end of the period analyzed.
Five-Component Disaggregation of ROE
Vertex Pharmaceuticals Inc., decomposition of ROE
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Tax Burden
- The tax burden ratio showed a gradual decline from 0.87 in 2020 to 0.78 in 2022, indicating a reduction in the portion of earnings retained after tax during this period. A slight recovery was observed in 2023 to 0.83, followed by a significant negative value of -2.16 in 2024, which suggests an unusual tax event or reporting anomaly impacting net earnings adversely after tax in that year.
- Interest Burden
- The interest burden ratio remained relatively stable between 0.98 and 0.99 from 2020 through 2023, signifying consistent interest expense relative to earnings before interest and taxes. In 2024, the ratio decreased to 0.89, indicating an increased interest expense or lower EBIT affecting earnings prior to tax negatively.
- EBIT Margin
- The EBIT margin experienced volatility over the five-year period. It started strong at 51.16% in 2020, declined sharply to 36.86% in 2021, recovered substantially to 48.01% in 2022, and then decreased again to 44.83% in 2023. A dramatic reduction to 2.53% in 2024 suggests a significant deterioration in operating profitability, which could be due to increased costs, reduced revenues, or other operational challenges.
- Asset Turnover
- Asset turnover declined from 0.53 in 2020 to 0.43 in 2023, reflecting reduced efficiency in generating revenues from assets during this period. A slight rebound to 0.49 in 2024 indicates a modest improvement in asset utilization but remains below the level observed in 2020 and 2021.
- Financial Leverage
- Financial leverage showed a slight decreasing trend from 1.35 in 2020 to 1.29 in 2023, suggesting a marginal reduction in reliance on debt financing relative to equity. However, in 2024, leverage rose back to 1.37, possibly indicating an increase in borrowing or changes in capital structure that year.
- Return on Equity (ROE)
- ROE declined progressively from a strong 31.22% in 2020 to 20.59% in 2023, signaling weakening profitability relative to shareholders' equity. The steep plunge to -3.26% in 2024 indicates a loss situation, highlighting significant challenges in generating returns for equity holders in that period. This negative return aligns with the low EBIT margin and adverse tax burden observed in 2024.
Two-Component Disaggregation of ROA
Vertex Pharmaceuticals Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2024 | = | × | |||
| Dec 31, 2023 | = | × | |||
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Net Profit Margin
- The net profit margin demonstrated a fluctuating pattern over the observed periods. Beginning at a high of 43.7% in 2020, it dropped significantly to 30.92% in 2021, then recovered somewhat to 37.2% in 2022. A minor decline followed in 2023 to 36.68%, before experiencing a sharp downturn to a negative value of -4.86% in 2024. This negative margin in the final period indicates the company incurred losses relative to its revenue during that year.
- Asset Turnover
- Asset turnover showed variability with an initial increase from 0.53 in 2020 to 0.56 in 2021, suggesting improved efficiency in using assets to generate sales. However, the ratio declined to 0.49 in 2022 and further dropped to 0.43 in 2023, indicating decreasing efficiency in those years. There was a modest rebound to 0.49 in 2024, but it remained below the earlier peak.
- Return on Assets (ROA)
- The return on assets mirrored some trends observed in profitability metrics. Starting at 23.07% in 2020, ROA decreased steadily to 17.44% in 2021 and then slightly improved to 18.3% in 2022. Following that, it declined again to 15.92% in 2023. The most significant change occurred in 2024, where ROA turned negative at -2.38%, consistent with the negative net profit margin, signaling overall asset returns were unfavorable in that year.
Four-Component Disaggregation of ROA
Vertex Pharmaceuticals Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2024 | = | × | × | × | |||||
| Dec 31, 2023 | = | × | × | × | |||||
| Dec 31, 2022 | = | × | × | × | |||||
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Tax Burden
- The tax burden ratio remained relatively stable from 2020 to 2023, fluctuating between 0.78 and 0.87. However, there is a notable and sharp decline in 2024, where the ratio drops to a significantly negative value of -2.16, indicating an unusual tax situation or the presence of tax benefits outweighing taxable income in that year.
- Interest Burden
- The interest burden ratio displayed a consistent and stable trend from 2020 through 2023, maintaining values close to 0.98–0.99. In 2024, this ratio decreased to 0.89, suggesting a relative increase in interest expense or financial costs impacting earnings before interest and taxes.
- EBIT Margin
- The EBIT margin started at a strong 51.16% in 2020 but experienced a significant decline in 2021 to 36.86%. There was some recovery in 2022 to 48.01%, followed by a slight decrease to 44.83% in 2023. In 2024, the EBIT margin sharply dropped to 2.53%, indicating a substantial reduction in operating profitability for that period.
- Asset Turnover
- The asset turnover ratio rose modestly from 0.53 in 2020 to a peak of 0.56 in 2021. Afterwards, the ratio declined over the next two years to 0.43 in 2023, before slightly improving to 0.49 in 2024. These changes suggest a fluctuation in the efficiency with which the company utilized its assets to generate revenue.
- Return on Assets (ROA)
- ROA demonstrated a downward trend from 23.07% in 2020 to 15.92% in 2023, reflecting decreasing asset profitability over the period. In 2024, ROA turned negative at -2.38%, indicating the company incurred losses relative to its asset base during that year.
Disaggregation of Net Profit Margin
Vertex Pharmaceuticals Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2024 | = | × | × | ||||
| Dec 31, 2023 | = | × | × | ||||
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Tax Burden
- The tax burden ratio demonstrates relative stability from 2020 through 2023, fluctuating between 0.78 and 0.87. However, there is a substantial negative deviation in 2024, with the ratio plummeting to -2.16. This suggests an unusual tax event or accounting adjustment negatively impacting profitability in that year.
- Interest Burden
- The interest burden ratio remains consistently high, narrowly ranging from 0.98 to 0.99 between 2020 and 2023, indicating minimal impact of interest expenses on earnings. A decline to 0.89 in 2024 shows a slight increase in interest expense relative to earnings, potentially exerting additional pressure on profitability.
- EBIT Margin
- The EBIT margin exhibits notable volatility. Starting at 51.16% in 2020, it declines sharply to 36.86% in 2021, recovers to 48.01% in 2022, and then decreases moderately to 44.83% in 2023. A drastic drop to 2.53% in 2024 highlights a significant erosion in operating profitability during the most recent period.
- Net Profit Margin
- Net profit margin follows a similar pattern to EBIT margin, decreasing from 43.7% in 2020 to 30.92% in 2021, improving to 37.2% in 2022, and slightly declining to 36.68% in 2023. The margin turns negative to -4.86% in 2024, indicating a net loss for the year and reflecting challenges to overall profitability.