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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- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Debt to Equity since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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Two-Component Disaggregation of ROE
Albemarle Corp., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × |
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 ROA exhibits a declining trend from 2018 through 2021, dropping from 9.15% in 2018 to a low of 1.13% in 2021. This suggests a decreasing efficiency in asset utilization over this period. However, there is a significant recovery in 2022, where ROA increases sharply to 17.4%, indicating a notable improvement in generating profit from the company's assets.
- Financial Leverage
- Financial leverage shows some fluctuation across the years. It increased from 2.11 in 2018 to a peak of 2.51 in 2019, then slightly declined to 2.45 in 2020. Subsequently, leverage decreased more noticeably in 2021 and 2022, reaching 1.95 and 1.94 respectively. This downward movement suggests a reduction in the company's reliance on debt relative to equity in the latter years.
- Return on Equity (ROE)
- The ROE follows a pattern similar to ROA, decreasing steadily from 19.34% in 2018 to a low of 2.2% in 2021, reflecting diminishing profitability for shareholders during this timeframe. In 2022, ROE surges dramatically to 33.7%, implying a substantial improvement in shareholder returns. The sharp increase in ROE alongside the improved ROA could indicate enhanced operational performance or profitability strategies implemented during that year.
Three-Component Disaggregation of ROE
Albemarle Corp., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
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 a declining trend from 20.55% in 2018 to 3.72% in 2021, indicating decreasing profitability over these years. However, there was a significant rebound in 2022, where the margin rose sharply to 36.75%, suggesting a notable improvement in cost management or revenue generation efficiency during that year.
- Asset Turnover
- Asset turnover showed a generally declining pattern from 0.45 in 2018 to 0.3 in both 2020 and 2021, indicating reduced efficiency in using assets to generate sales. In 2022, asset turnover increased to 0.47, surpassing earlier years, reflecting enhanced utilization of assets to drive revenue.
- Financial Leverage
- The financial leverage ratio increased from 2.11 in 2018 to a peak of 2.51 in 2019, then gradually decreased to 1.94 by 2022. This trend suggests a reduction in reliance on debt financing or a relative increase in equity over the period following 2019, potentially indicating a more conservative capital structure.
- Return on Equity (ROE)
- ROE declined steadily from 19.34% in 2018 to a low of 2.2% in 2021, paralleling the trends observed in net profit margin and indicating decreasing profitability and efficiency in generating shareholder returns. A dramatic recovery occurred in 2022, with ROE rising sharply to 33.7%, signifying a strong improvement in overall financial performance and value generation for shareholders.
Five-Component Disaggregation of ROE
Albemarle Corp., decomposition of ROE
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 remained relatively stable over the period, fluctuating slightly between 0.81 and 0.87. This indicates a consistent effective tax rate impacting net income, with no significant upward or downward trend.
- Interest Burden
- The interest burden ratio showed notable fluctuations. Starting at 0.94 in 2018, it decreased to 0.71 in 2021, indicating increased interest expenses relative to earnings before interest and taxes (EBIT). However, in 2022, the ratio rebounded sharply to 0.96, suggesting an improvement in the company’s ability to cover interest expenses.
- EBIT Margin
- The EBIT margin exhibited a downward trend from 26.39% in 2018 to a low of 6.45% in 2021, signaling declining operational profitability during these years. In 2022, there was a significant recovery, with the margin increasing sharply to 43.76%, reflecting a strong improvement in operational efficiency or profitability.
- Asset Turnover
- Asset turnover decreased from 0.45 in 2018 to 0.30 by 2020 and remained steady at 0.30 through 2021. In 2022, the ratio increased to 0.47, indicating better utilization of assets to generate revenue in the latest period.
- Financial Leverage
- Financial leverage rose from 2.11 in 2018 to a peak of 2.51 in 2019, then gradually declined to 1.94 by 2022. This suggests a reduction in the reliance on debt to finance assets over the analyzed period, possibly indicating deleveraging or a change in capital structure.
- Return on Equity (ROE)
- ROE mirrored the trends seen in EBIT margin and interest burden. It decreased significantly from 19.34% in 2018 to just 2.2% in 2021, reflecting reduced profitability and efficiency in generating returns for equity holders. In 2022, ROE surged to 33.7%, demonstrating a substantial revival in shareholders’ returns, which aligns with improvements in operational profitability and asset utilization.
Two-Component Disaggregation of ROA
Albemarle Corp., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × |
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
- There is a clear downward trend in the net profit margin from 20.55% in 2018 to 3.72% in 2021, indicating decreasing profitability during this period. However, in 2022, a significant recovery is observed with the margin rising sharply to 36.75%, suggesting an improvement in cost control, pricing strategy, or other profitability drivers.
- Asset Turnover
- Asset turnover shows a decline from 0.45 in 2018 to 0.3 in 2020 and remains flat at 0.3 in 2021. This decrease suggests reduced efficiency in generating sales from assets during these years. The ratio then rebounds to 0.47 in 2022, indicating an improvement in asset utilization and possibly higher sales volume or more efficient asset management.
- Return on Assets (ROA)
- The ROA declines markedly from 9.15% in 2018 to a low of 1.13% in 2021, reflecting reduced profitability relative to the asset base. In 2022, ROA increases substantially to 17.4%, consistent with the improvements seen in net profit margin and asset turnover. This indicates a strong recovery in overall asset profitability.
Four-Component Disaggregation of ROA
Albemarle Corp., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | × | |||||
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × |
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 demonstrates a generally stable pattern over the observed periods, fluctuating between 0.81 and 0.87. There was a slight dip in 2021 to 0.81, followed by a recovery to 0.87 in 2022, indicating consistent tax efficiency with minor variability.
- Interest Burden
- The interest burden ratio shows more volatility across the years. It declined steadily from 0.94 in 2018 to a low of 0.71 in 2021, suggesting increasing interest expenses or financial costs impacting earnings before interest and taxes. However, it rebounded sharply to 0.96 in 2022, indicating improved control or reduction of interest-related expenses in the latest period.
- EBIT Margin
- The EBIT margin experienced a marked decline from 26.39% in 2018 to a trough of 6.45% in 2021, indicating decreasing operational profitability. Notably, there was a substantial recovery in 2022, with the margin rising sharply to 43.76%, surpassing all previous periods. This suggests significant operational improvements or favorable business conditions in the most recent year.
- Asset Turnover
- Asset turnover declined from 0.45 in 2018 to 0.30 by 2020 and remained flat through 2021. In 2022, the ratio increased to 0.47, indicating enhanced efficiency in using assets to generate revenue after several years of subdued performance.
- Return on Assets (ROA)
- The ROA followed a downward trend from 9.15% in 2018 to a low of 1.13% in 2021, reflecting diminishing overall profitability relative to asset base during this period. The return rebounded significantly in 2022 to 17.4%, indicating a strong recovery in asset profitability consistent with improvements observed in EBIT margin and asset turnover.
Disaggregation of Net Profit Margin
Albemarle Corp., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
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 shows a generally stable trend with slight fluctuations, starting at 0.83 in 2018, increasing gradually to 0.87 by 2020, experiencing a small decline to 0.81 in 2021, and rising again to 0.87 in 2022. This indicates a relatively consistent proportion of earnings retained after tax over the period.
- Interest Burden
- The interest burden ratio demonstrates notable variability. It began at 0.94 in 2018, decreased gradually to a low of 0.71 in 2021, implying higher interest expenses relative to earnings before interest and taxes. However, in 2022 there was a strong reversal, with the ratio sharply increasing to 0.96, reflecting a significant reduction in interest expenses or improved earnings before interest and taxes coverage.
- EBIT Margin
- The EBIT margin experienced a downward trend from 26.39% in 2018 to a low of 6.45% in 2021, indicating decreasing operational profitability over these years. Nevertheless, there was a dramatic recovery in 2022, with the margin surging to 43.76%, well above previous years, signaling a remarkable improvement in operating efficiency or pricing power in the most recent year.
- Net Profit Margin
- The net profit margin followed a similar trajectory to the EBIT margin. It declined from 20.55% in 2018 to a low of 3.72% in 2021, suggesting decreased profitability after all expenses and taxes. The margin rebounded sharply in 2022 to 36.75%, indicating significantly improved bottom-line performance, closely reflecting the recovery observed in operating profitability.