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.
Two-Component Disaggregation of ROE
Elevance Health 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).
- Return on Assets (ROA)
- The return on assets shows an initial increase from 5.28% in 2020 to 6.26% in 2021, indicating improved efficiency in asset utilization. However, from 2021 onward, there is a gradual decline with values decreasing to 5.86% in 2022, 5.5% in 2023, and further to 5.12% in 2024. This trend suggests a reduction in asset profitability over the latter years.
- Financial Leverage
- Financial leverage exhibits a generally increasing trend over the period analyzed. Starting at 2.61 in 2020, it rises steadily to 2.7 in 2021 and reaches 2.83 in 2022. Although there is a slight dip to 2.77 in 2023, leverage returns to 2.83 in 2024. This pattern indicates a moderate increase in the use of debt relative to equity to finance assets.
- Return on Equity (ROE)
- Return on equity follows a rising trajectory from 13.77% in 2020 to a peak of 16.93% in 2021, reflecting enhanced profitability for shareholders. Subsequently, ROE decreases gradually to 16.59% in 2022, 15.23% in 2023, and 14.47% in 2024. Despite the decline, ROE remains above the 2020 level, implying sustained equity returns albeit at a reduced pace.
- Overall Insights
- The data reveals that while the company increased its financial leverage over the years, returns on assets and equity peaked in 2021 and have since declined gradually. The diminishing ROA indicates a reduction in asset profitability, which, combined with increased leverage, may signal growing financial risk. Nevertheless, the ROE continues to remain above its initial value, demonstrating that shareholder returns, although decreasing, are still relatively strong.
Three-Component Disaggregation of ROE
Elevance Health 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).
- Net Profit Margin
- The net profit margin exhibited some fluctuations over the five-year period. It increased from 3.78% in 2020 to a peak of 4.46% in 2021, followed by a gradual decline to 3.41% in 2024. This indicates a slight downward trend in profitability relative to revenue after 2021.
- Asset Turnover
- Asset turnover showed a generally positive trend, improving from 1.39 in 2020 to a high of 1.56 in 2023. There was a minor reduction to 1.5 in 2024, but overall it suggests better utilization of assets to generate sales during this period.
- Financial Leverage
- Financial leverage experienced a gradual increase from 2.61 in 2020 to 2.83 by 2022, then slightly declined to 2.77 in 2023 before reverting to 2.83 in 2024. This indicates a moderate increase in the use of debt or other liabilities relative to equity over time.
- Return on Equity (ROE)
- Return on equity rose significantly from 13.77% in 2020 to a peak of 16.93% in 2021. Thereafter, it showed a gradual decline, reaching 14.47% in 2024. This trend may reflect changes in profitability and leverage impacting shareholder returns.
Five-Component Disaggregation of ROE
Elevance Health 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 increase from 0.73 in 2020 to 0.78 in 2023, indicating a slightly higher proportion of earnings retained after taxes over this period. However, it decreased marginally to 0.76 in 2024, suggesting a small reduction in the tax efficiency or changes in tax policies affecting profitability.
- Interest Burden
- The interest burden ratio remained relatively stable, fluctuating moderately between 0.87 and 0.91. There was a peak at 0.91 in 2021 and a steady decline from 2022 onwards, reaching 0.87 in 2024. This trend reflects a modest improvement in interest expense management relative to earnings before interest and taxes (EBIT).
- EBIT Margin
- The EBIT margin experienced a peak in 2021 at 6.38%, followed by a consistent decline to 5.14% in 2023, then a slight increase to 5.19% in 2024. This decline indicates a reduction in operating profitability over the years, suggesting either rising costs or pricing pressures impacting earnings before interest and taxes.
- Asset Turnover
- The asset turnover ratio demonstrated an overall upward trajectory from 1.39 in 2020 to a peak of 1.56 in 2023, before a minor decline to 1.50 in 2024. This implies improved operational efficiency in generating revenue from assets until 2023, with a slight efficiency tapering in the most recent year.
- Financial Leverage
- Financial leverage increased from 2.61 in 2020 to 2.83 in 2022, indicating growing use of debt or equity to finance assets. A small reduction occurred in 2023 to 2.77, but it rose again to 2.83 in 2024, suggesting sustained moderate leverage with slight fluctuations.
- Return on Equity (ROE)
- ROE showed an improvement from 13.77% in 2020 to a high of 16.93% in 2021, reflecting strong value generation for shareholders. Subsequently, ROE declined gradually via 16.59% in 2022 to 14.47% in 2024. This decline corresponds with decreasing EBIT margins and the marginal shifts in other contributing factors, pointing to reducing overall profitability and efficiency in utilizing equity.
Two-Component Disaggregation of ROA
Elevance Health Inc., decomposition of ROA
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 exhibits a fluctuating but generally declining trend over the five-year period. It increased from 3.78% in 2020 to a peak of 4.46% in 2021, indicating improved profitability during that year. However, it subsequently declined to 3.87% in 2022, further decreased to 3.52% in 2023, and slightly reduced again to 3.41% in 2024. This pattern suggests that while the company had a strong year in 2021, profitability margins have gradually contracted since then.
- Asset Turnover
- Asset turnover shows a generally positive trend with some fluctuations. Starting at 1.39 in 2020, it slightly increased to 1.41 in 2021 and then rose to 1.51 in 2022. The upward momentum continued reaching the highest point of 1.56 in 2023, reflecting improved efficiency in asset utilization to generate sales. However, in 2024, asset turnover saw a minor decrease to 1.50 but remained higher than in the earlier years, suggesting the company maintained a relatively effective use of assets over the period.
- Return on Assets (ROA)
- ROA follows a trend somewhat aligned with the net profit margin and asset turnover. It increased from 5.28% in 2020 to a peak of 6.26% in 2021, which implies enhanced profitability relative to total assets during that year. Subsequently, ROA declined to 5.86% in 2022, dropped further to 5.5% in 2023, and decreased again to 5.12% in 2024. The declining ROA in the latter years indicates that the company's effectiveness in generating returns from its assets has weakened after 2021, consistent with the declining profit margin despite generally stable asset turnover.
Four-Component Disaggregation of ROA
Elevance Health Inc., decomposition of ROA
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 increase from 0.73 in 2020 to a peak of 0.78 in 2023, followed by a slight decrease to 0.76 in 2024. This indicates a general trend of rising tax obligations relative to pre-tax earnings over the period, with a minor easing in the latest year.
- Interest Burden
- The interest burden ratio experienced a modest upward trend from 0.89 in 2020 to 0.91 in 2021, then declined steadily to 0.87 by 2024. This suggests an improvement in the company's ability to cover interest expenses, reflecting potentially lower interest costs or higher EBIT relative to interest expense over time.
- EBIT Margin
- The EBIT margin showed an initial increase from 5.81% in 2020 to 6.38% in 2021 but declined thereafter, reaching 5.14% in 2023 before a slight rebound to 5.19% in 2024. This pattern indicates some volatility in operating profitability, with margins contracting after 2021 but stabilizing towards the end of the period.
- Asset Turnover
- Asset turnover displayed a generally positive trend, rising from 1.39 in 2020 to a peak of 1.56 in 2023 before a minor decrease to 1.50 in 2024. This suggests improved efficiency in using assets to generate revenue over most of the period, with a small decline in the final year.
- Return on Assets (ROA)
- Return on assets increased significantly from 5.28% in 2020 to a high of 6.26% in 2021, followed by a gradual decline to 5.12% in 2024. The trend mirrors changes in EBIT margin and asset turnover, reflecting a peak in overall asset profitability in 2021 and decreased returns in subsequent years.
Disaggregation of Net Profit Margin
Elevance Health Inc., decomposition of net profit margin ratio
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 exhibits a general upward trend from 0.73 in 2020 to a peak of 0.78 in 2023, followed by a slight decrease to 0.76 in 2024. This suggests an increasing proportion of income retained after taxes over the initial years, indicating improved tax efficiency, although a minor reversal is observed in the latest year.
- Interest Burden
- The interest burden ratio shows a slight decline over the period, starting at 0.89 in 2020 and gradually decreasing to 0.87 in 2024. This continuous but modest decrease implies a marginal increase in interest expenses relative to earnings before interest and taxes (EBIT), potentially reflecting changes in financing costs or debt levels.
- EBIT Margin
- The EBIT margin peaked at 6.38% in 2021 but subsequently declined each year, reaching 5.14% in 2023 before a marginal increase to 5.19% in 2024. This downward trend after 2021 indicates a reduction in operating profitability, suggesting rising operating costs or pressure on revenue margins, with a slight recovery in the final reported year.
- Net Profit Margin
- The net profit margin follows a similar pattern to the EBIT margin, increasing from 3.78% in 2020 to 4.46% in 2021, then declining continuously to 3.41% by 2024. The decreasing net profit margin after 2021 reflects diminishing overall profitability, possibly due to higher costs, taxes, or interest obligations, and highlights challenges in maintaining profit levels amid changing financial conditions.