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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- Balance Sheet: Assets
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Return on Assets (ROA) since 2005
- Analysis of Debt
- Aggregate Accruals
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Two-Component Disaggregation of ROE
Baxter International Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2015 | = | × | |||
| Dec 31, 2014 | = | × | |||
| Dec 31, 2013 | = | × | |||
| Dec 31, 2012 | = | × | |||
| Dec 31, 2011 | = | × |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Return on Assets (ROA)
- The ROA demonstrated a declining trend over the five-year period. Starting at 11.66% in 2011, it decreased slightly to 11.41% in 2012, followed by a more pronounced drop to 7.78% in 2013. A partial recovery occurred in 2014 with an increase to 9.63%, yet it sharply declined again in 2015 to 4.62%. This pattern indicates a reduction in asset profitability over time, with a significant dip in the final year.
- Financial Leverage
- Financial leverage showed a gradual increase from 2.9 in 2011 to 3.19 in 2014, suggesting an increasing reliance on debt financing or other liabilities relative to equity. In 2015, however, there was a notable decrease to 2.37, indicating a reduction in leverage and potentially a more conservative capital structure in that year.
- Return on Equity (ROE)
- ROE followed a pattern somewhat similar to ROA. It commenced at a high level of 33.77% in 2011 and remained relatively stable in 2012 at 33.53%. A significant decline occurred in 2013 to 23.77%, followed by a rebound in 2014 to 30.75%. Nevertheless, in 2015, ROE dropped sharply to 10.94%. This fluctuation reflects varying effectiveness in generating shareholder returns, with a considerable weakening in the final year.
- Overall Insights
- The company exhibited a trend of decreasing profitability metrics over the analyzed period, particularly evident in 2015 with both ROA and ROE reaching their lowest points. Financial leverage tended to increase until 2014, which may have amplified equity returns during that period, but the subsequent reduction in leverage in 2015 possibly contributed to the lower ROE and ROA. The data suggests challenges in maintaining efficient asset usage and profitability in the latter years under review, alongside a shift toward a less leveraged financial structure.
Three-Component Disaggregation of ROE
Baxter International Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × | ||||
| Dec 31, 2012 | = | × | × | ||||
| Dec 31, 2011 | = | × | × |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Net Profit Margin
- The Net Profit Margin experienced a decline over the period analyzed. Starting at 16.01% in 2011, it showed a slight increase to 16.39% in 2012, followed by a notable decrease to 13.19% in 2013. Although there was a modest recovery to 14.98% in 2014, the margin dropped considerably to 9.71% by 2015. This trend indicates a reduction in profitability relative to sales towards the end of the period.
- Asset Turnover
- The Asset Turnover ratio showed a consistent downward trend through the years. From 0.73 in 2011, it gradually decreased year-over-year to 0.7 in 2012, then to 0.59 in 2013, rising slightly to 0.64 in 2014, before declining again to 0.48 in 2015. This trend reflects a reduced efficiency in utilizing assets to generate sales.
- Financial Leverage
- Financial Leverage increased steadily from 2.9 in 2011 to 3.19 in 2014, suggesting an increasing reliance on debt financing during this period. However, there was a sharp decrease to 2.37 in 2015, indicating a significant reduction in leverage, which could imply efforts to strengthen the capital structure or reduce financial risk.
- Return on Equity (ROE)
- Return on Equity showed strong performance in the early years, with values above 30% in both 2011 (33.77%) and 2012 (33.53%). However, it declined sharply to 23.77% in 2013, rebounded to 30.75% in 2014, and then dropped dramatically to 10.94% in 2015. The sharp decline in 2015 suggests a major decrease in the company's ability to generate profits from shareholders' equity.
Five-Component Disaggregation of ROE
Baxter International Inc., decomposition of ROE
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Tax Burden
- The tax burden ratio shows an overall increasing trend from 0.80 in 2011 to 0.97 in 2015, indicating a rising proportion of earnings retained after taxes over the period, with a slight dip in 2013 before recovering and peaking in 2015.
- Interest Burden
- The interest burden decreased steadily from 0.97 in 2011 to 0.87 in 2015. This suggests that the company faced increasing interest expenses relative to EBIT, potentially indicating a higher cost of debt or increasing debt levels impacting profitability.
- EBIT Margin
- The EBIT margin experienced a decline over the period, starting at 20.65% in 2011, peaking slightly at 21.16% in 2012, and then decreasing significantly to 11.53% by 2015. This downward trend points to reduced operational profitability relative to sales.
- Asset Turnover
- Asset turnover ratio showed a decreasing pattern from 0.73 in 2011 to 0.48 in 2015. This indicates diminishing efficiency in generating sales from assets over time.
- Financial Leverage
- Financial leverage increased from 2.90 in 2011 to a high of 3.19 in 2014, followed by a decrease to 2.37 in 2015. The initial increase suggests growing reliance on debt or other liabilities, while the decline in 2015 may signal deleveraging or improved equity financing.
- Return on Equity (ROE)
- Return on equity declined substantially from 33.77% in 2011 to 10.94% in 2015, with notable volatility, including a drop to 23.77% in 2013 and a partial recovery in 2014. The overall decline reflects weakening ability to generate profits from shareholders' equity.
Two-Component Disaggregation of ROA
Baxter International Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2015 | = | × | |||
| Dec 31, 2014 | = | × | |||
| Dec 31, 2013 | = | × | |||
| Dec 31, 2012 | = | × | |||
| Dec 31, 2011 | = | × |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Net Profit Margin
- The net profit margin displayed a decreasing trend over the analyzed period. Starting at 16.01% in 2011, it slightly increased to 16.39% in 2012 but then declined to 13.19% in 2013. A moderate recovery was observed in 2014 with a margin of 14.98%, followed by a significant drop to 9.71% in 2015. This pattern indicates volatility in profitability efficiency, with a general decline towards the end of the period.
- Asset Turnover
- Asset turnover showed a consistent decline across the five years. Beginning at 0.73 in 2011, the ratio decreased steadily to 0.7 in 2012, 0.59 in 2013, then a slight increase to 0.64 in 2014, before dropping sharply to 0.48 in 2015. This trend suggests diminishing efficiency in generating revenue from asset base, especially notable in the final year.
- Return on Assets (ROA)
- Return on assets also followed a downward trajectory. ROA was 11.66% in 2011 and remained relatively stable at 11.41% in 2012. It then dropped substantially to 7.78% in 2013, showed some improvement to 9.63% in 2014, but fell again to 4.62% in 2015. The fluctuating but overall declining ROA reflects reduced effectiveness in asset utilization to generate profit.
- Overall Analysis
- The company experienced a general decline in profitability and operational efficiency from 2011 through 2015. Both net profit margin and ROA decreased significantly, indicating challenges in maintaining profit levels relative to sales and asset base. The declining asset turnover further emphasizes reduced efficiency in using assets to support sales. Despite minor recoveries in some years, the downward trends by 2015 highlight potential concerns about profitability sustainability and asset management effectiveness.
Four-Component Disaggregation of ROA
Baxter International Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2015 | = | × | × | × | |||||
| Dec 31, 2014 | = | × | × | × | |||||
| Dec 31, 2013 | = | × | × | × | |||||
| Dec 31, 2012 | = | × | × | × | |||||
| Dec 31, 2011 | = | × | × | × |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Tax Burden
- The tax burden ratio shows a generally increasing trend over the five-year period, starting at 0.80 in 2011 and rising steadily to 0.97 by 2015. This indicates that the proportion of earnings retained after taxes has improved, suggesting a reduction in tax expenses relative to earnings before tax over time.
- Interest Burden
- The interest burden ratio exhibits a gradual decline from 0.97 in 2011 to 0.87 in 2015. This trend points to an increasing impact of interest expenses on earnings before tax, reflecting either higher interest costs or lower earnings before interest and taxes, or both, resulting in reduced earnings capacity after accounting for interest.
- EBIT Margin
- The EBIT margin percentage decreases significantly across the period, from a high of 21.16% in 2012 to a low of 11.53% in 2015. The declining margin indicates reduced operating profitability, with the sharpest drop occurring between 2014 and 2015, suggesting increased operating costs or pricing pressure affecting earnings before interest and taxes.
- Asset Turnover
- The asset turnover ratio shows a consistent downward trend from 0.73 in 2011 to 0.48 in 2015. This decline implies a decreasing efficiency in generating sales from assets, which could be due to lower sales volumes or increased asset base without commensurate revenue growth, signaling less effective use of company assets over time.
- Return on Assets (ROA)
- The return on assets percentage follows a declining pattern, dropping from 11.66% in 2011 to 4.62% in 2015. The reduction in ROA reflects a decrease in overall profitability relative to asset base, likely influenced by the combined effects of declining EBIT margins and asset turnover, representing diminishing efficiency and profitability in asset utilization.
Disaggregation of Net Profit Margin
Baxter International Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × | ||||
| Dec 31, 2012 | = | × | × | ||||
| Dec 31, 2011 | = | × | × |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Tax Burden
- The tax burden ratio exhibits a general increasing trend over the five-year period. Beginning at 0.80 in 2011, it gradually rises to 0.97 by 2015. This indicates that a larger proportion of earnings before taxes is being retained after taxes in later years, suggesting potentially reduced tax expenses relative to pre-tax profits or changes in tax policy affecting the company.
- Interest Burden
- The interest burden ratio shows a slight declining trend from 0.97 in 2011 down to 0.87 in 2015. This decreasing ratio implies a higher interest expense relative to EBIT over time, reflecting an increased financial cost burden or growing debt servicing expenses impacting the earnings before taxes.
- EBIT Margin
- The EBIT margin percentage reveals a downward trend from 20.65% in 2011 to 11.53% in 2015. After an initial fluctuation with a peak at 21.16% in 2012, the profitability at the EBIT level declines significantly, especially notable in 2015 when it falls almost by half compared to 2011. This suggests deteriorating operational efficiency or increased operating costs impacting core earnings.
- Net Profit Margin
- The net profit margin also demonstrates a declining pattern, starting from 16.01% in 2011 and decreasing to 9.71% by 2015. Similar to EBIT margin, this margin sees a peak in 2012 (16.39%) and then a steady decline, indicating pressures on profitability at the bottom line level, potentially due to increased costs, interest expenses, or other factors reducing net income.
- Summary Insights
- Overall, the data suggests that while the company is experiencing improvements in its tax burden, reducing tax impact on profits, it is facing increasing interest costs and eroding margins. Both EBIT and net profit margins have almost halved over the period, highlighting challenges in maintaining profitability. The growing interest burden could be a contributing factor to the decreased net profit margin, indicating increased financial expenses. This trend points to a need for closer scrutiny of operational efficiencies and financial management to improve profitability.