DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Quarterly Data
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
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- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Price to FCFE (P/FCFE)
- Net Profit Margin since 2020
- Return on Assets (ROA) since 2020
- Debt to Equity since 2020
- Total Asset Turnover since 2020
- Analysis of Revenues
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Two-Component Disaggregation of ROE
Carrier Global Corp., decomposition of ROE (quarterly data)
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Mar 31, 2023 | = | × | |||
| Dec 31, 2022 | = | × | |||
| Sep 30, 2022 | = | × | |||
| Jun 30, 2022 | = | × | |||
| Mar 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Sep 30, 2021 | = | × | |||
| Jun 30, 2021 | = | × | |||
| Mar 31, 2021 | = | × |
Based on: 10-Q (reporting date: 2023-03-31), 10-K (reporting date: 2022-12-31), 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31).
- Return on Assets (ROA)
- The Return on Assets demonstrates notable fluctuations over the observed quarters. Initially, ROA showed a slight increase from 9.13% to a peak of 9.7% in mid-2021, followed by a decline toward the end of 2021, reaching 6.36%. Starting in early 2022, ROA rebounded significantly, reaching a high of 14.15% in the third quarter before a modest decline to 9.57% by the first quarter of 2023. This pattern suggests cyclical performance with a strong recovery phase in 2022, although the most recent quarter shows some retraction.
- Financial Leverage
- The financial leverage ratio exhibited a gradual downward trend over the analyzed period. Beginning at 3.83 in the first quarter of 2021, it remained relatively stable with minor fluctuations until the end of 2021. From 2022 onwards, the leverage ratio consistently decreased, ending at 3.25 in the first quarter of 2023. This reduction indicates a progressive decrease in the degree to which the company is using debt relative to equity, which may reflect a deliberate strategy to manage financial risk.
- Return on Equity (ROE)
- Return on Equity shows significant volatility across the quarters. After an initial increase from 34.98% to 36.94% within the first half of 2021, ROE declined markedly to 24.59% by the end of 2021. The figures then surged sharply in 2022, reaching a peak of 50.17% in the third quarter. However, this strong growth was not sustained, as ROE decreased to 31.08% in the first quarter of 2023. This considerable variability implies fluctuations in the efficiency of equity utilization and possibly an influence of changes in net income or financial structure.
Three-Component Disaggregation of ROE
Carrier Global Corp., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2023-03-31), 10-K (reporting date: 2022-12-31), 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31).
- Net Profit Margin
- The net profit margin exhibited notable fluctuations over the observed periods. It started at 12.43% in the first quarter of 2021, showing a modest increase to 12.65% in the following quarter. Subsequently, it declined to 11.08% and then sharply dropped to 8.07% by the end of 2021. A recovery phase was evident in 2022, with the margin increasing to a peak of 17.55% in the third quarter before slightly tapering to 17.31% by year-end. However, in the first quarter of 2023, the margin contracted significantly to 12.02%.
- Asset Turnover
- Asset turnover generally demonstrated an upward trend from 0.73 in early 2021 to 0.86 by mid-2022, reflecting improved efficiency in generating sales from assets. Post mid-2022, the ratio experienced a slight decline to 0.78 by the end of 2022 but showed a minor recovery to 0.80 in the first quarter of 2023. The fluctuations remain within a relatively narrow band, suggesting stable asset utilization.
- Financial Leverage
- Financial leverage decreased gradually across the periods. Beginning at 3.83 in the first quarter of 2021, the ratio remained fairly steady through 2021 but then showed a marked decline from 3.41 in early 2022 to 3.25 in the first quarter of 2023. This trend indicates a reduction in reliance on debt financing relative to equity, which could imply a strengthening equity base or deleveraging efforts.
- Return on Equity (ROE)
- ROE demonstrated significant volatility. Starting at 34.98% in early 2021, it peaked at 36.94% mid-year before declining sharply to 24.59% by the end of 2021. A strong rebound occurred in 2022, reaching an all-time high of 50.17% in the third quarter, followed by a decrease to 45.55% by year-end. The most recent data for 2023 shows a considerable reduction to 31.08%. These fluctuations correspond with the changes in net profit margin and leverage, reflecting the combined impact of profitability, efficiency, and capital structure on shareholder returns.
Two-Component Disaggregation of ROA
Carrier Global Corp., decomposition of ROA (quarterly data)
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Mar 31, 2023 | = | × | |||
| Dec 31, 2022 | = | × | |||
| Sep 30, 2022 | = | × | |||
| Jun 30, 2022 | = | × | |||
| Mar 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Sep 30, 2021 | = | × | |||
| Jun 30, 2021 | = | × | |||
| Mar 31, 2021 | = | × |
Based on: 10-Q (reporting date: 2023-03-31), 10-K (reporting date: 2022-12-31), 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31).
- Net Profit Margin
- The net profit margin exhibited variability across the observed periods. Starting at 12.43% in the first quarter of 2021, it showed a modest upward trend reaching 12.65% in the second quarter of the same year before declining to 8.07% by the end of 2021. In 2022, the margin recovered significantly, peaking at 17.55% in the third quarter, followed by a slight decrease to 17.31% in the final quarter. The margin declined again to 12.02% by the first quarter of 2023. Overall, the net profit margin displayed a pattern of decline in late 2021, a strong rebound through 2022, and a moderate reduction in early 2023.
- Asset Turnover
- Asset turnover showed a consistent upward trend throughout most of the period. Beginning at 0.73 in the first quarter of 2021, it increased steadily to reach 0.79 by the end of 2021. This improving trend continued into 2022, with the ratio reaching its highest point of 0.86 in the second quarter. However, the ratio slightly decreased in the latter half of 2022, dropping to 0.78 in the final quarter but rebounding marginally to 0.80 by the first quarter of 2023. The data suggests an overall improvement in asset utilization efficiency, with minor fluctuations in late 2022.
- Return on Assets (ROA)
- The ROA mirrored the trends observed in net profit margin to a considerable degree. Starting at 9.13% in early 2021, it rose to 9.7% by mid-year before falling to 6.36% at the end of 2021, marking the lowest point in the observed timeline. In 2022, the ROA showed a notable recovery, climbing steadily to 14.15% in the third quarter and slightly decreasing to 13.55% in the fourth quarter. The first quarter of 2023 saw a decline to 9.57%. The ROA performance indicates periods of fluctuating profitability relative to assets, with significant gains during 2022 followed by a moderation in early 2023.