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
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- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Sales (P/S) since 2005
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Two-Component Disaggregation of ROE
EOG Resources Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Return on Assets (ROA)
- The return on assets exhibits a notable improvement over the analyzed period. It starts at a negative value of -16.77% in 2015, indicating a loss relative to the total assets. The ROA improves significantly in 2016 to -3.72%, transitioning into positive territory in 2017 at 8.66%. This positive trend continues into 2018, reaching a peak of 10.08%, before experiencing a slight decline to 7.37% in 2019. Overall, the trend suggests enhanced efficiency in asset utilization over these years, despite a modest setback in the final year.
- Financial Leverage
- The financial leverage ratio demonstrates a consistent decrease from 2.08 in 2015 to 1.72 in 2019. This steady decline indicates a reduction in the reliance on debt relative to equity, suggesting a conservative approach to financial structure and potentially lower financial risk. The decrease from 2.11 in 2016 to 1.83 in 2017 is particularly notable, signaling a shift towards reduced leverage during this period.
- Return on Equity (ROE)
- Return on equity follows a pattern similar to that of ROA, with a substantial recovery over the timeframe. It begins at a negative -34.96% in 2015, reflecting significant losses to shareholders' equity. Improvement is evident in 2016, with ROE rising to -7.84%, and turning positive in 2017 at 15.86%. The highest ROE is recorded in 2018 at 17.66%, before declining to 12.64% in 2019. The trend indicates that shareholder value creation rebounded strongly after 2015, though the drop in the final year may require further monitoring.
Three-Component Disaggregation of ROE
EOG Resources Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Net Profit Margin
- The net profit margin exhibited significant improvement over the five-year period. Initially, it was deeply negative at -51.66% in 2015, indicating substantial losses. The margin improved sharply in 2016 to -14.33%, turning positive in 2017 at 23.04%. This positive trend continued with a slight decline in subsequent years, settling at 19.79% in 2018 and 15.74% in 2019. This pattern suggests a recovery followed by stabilization in profitability.
- Asset Turnover
- The asset turnover ratio shows an overall upward trend from 2015 to 2019, reflecting improved efficiency in using assets to generate revenue. The ratio decreased slightly from 0.32 in 2015 to 0.26 in 2016 but then increased markedly to 0.38 in 2017. The upward trend persisted, reaching a peak of 0.51 in 2018 before a slight decline to 0.47 in 2019. This indicates enhanced operational effectiveness during the period, though with some fluctuation near the end.
- Financial Leverage
- Financial leverage steadily decreased over the examined period, moving from 2.08 in 2015 to 1.72 in 2019. This declining leverage ratio implies a gradual reduction in reliance on debt financing or an increase in equity relative to debt, potentially indicating a more conservative or stable capital structure.
- Return on Equity (ROE)
- The return on equity mirrored the net profit margin trend, moving from strongly negative levels to positive growth over the five years. ROE was -34.96% in 2015, improving to -7.84% in 2016 and turning positive at 15.86% in 2017. It further increased to 17.66% in 2018 but then declined to 12.64% in 2019. This reflects improving shareholder returns, although with some volatility toward the latter years.
Five-Component Disaggregation of ROE
EOG Resources Inc., decomposition of ROE
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Tax Burden
- The tax burden ratio is only available from 2017 onwards, showing a significant decrease from 3.91 in 2017 to 0.81 in 2018, then a slight further decrease to 0.77 in 2019. This trend indicates an improving tax efficiency or lower effective tax rate in recent years.
- Interest Burden
- Interest burden improved markedly from 0.71 in 2017 to 0.95 in 2018 and remained stable at 0.95 in 2019. This suggests the company reduced its interest expenses relative to earnings before interest and taxes, enhancing profitability.
- EBIT Margin
- The EBIT margin demonstrated a significant upward trend over the observed period. Starting with substantial negative margins, -76.33% in 2015 and -16.68% in 2016, it turned positive to 8.35% in 2017 and further increased to a peak of 25.97% in 2018 before slightly declining to 21.46% in 2019. This reflects a recovery and strengthening of operating profitability.
- Asset Turnover
- Asset turnover showed a general upward trend from 0.32 in 2015 to 0.51 in 2018, reflecting improved efficiency in generating sales from assets. There was a minor decline to 0.47 in 2019, which suggests a slight reduction in asset utilization efficiency but overall a strong performance relative to earlier years.
- Financial Leverage
- Financial leverage decreased steadily from 2.08 in 2015 to 1.72 in 2019. This indicates a gradual reduction in reliance on debt financing and potentially a stronger equity base over time.
- Return on Equity (ROE)
- Return on equity improved markedly from negative values in 2015 (-34.96%) and 2016 (-7.84%) to positive and increasing values in 2017 (15.86%) and 2018 (17.66%). However, there was a slight decline to 12.64% in 2019. Overall, this suggests a significant recovery in shareholder returns, despite a minor recent dip.
Two-Component Disaggregation of ROA
EOG Resources Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Net Profit Margin
- The net profit margin exhibited significant variability over the observed period. It started with a substantial negative margin of -51.66% in 2015, indicating considerable losses. This loss magnitude decreased sharply in 2016 to -14.33%, reflecting an improvement. In 2017, the margin turned positive at 23.04%, maintaining profitability in subsequent years, though it showed a declining trend to 19.79% in 2018 and further to 15.74% in 2019.
- Asset Turnover
- The asset turnover ratio demonstrated an overall positive trend, suggesting increased efficiency in using assets to generate revenue. It declined from 0.32 in 2015 to 0.26 in 2016, marking a temporary dip. However, it rebounded strongly to 0.38 in 2017 and continued to rise to a peak of 0.51 in 2018 before slightly decreasing to 0.47 in 2019. The improvements indicate an enhanced ability to leverage assets over the years.
- Return on Assets (ROA)
- Return on assets followed a pattern similar to net profit margin, starting with a negative return of -16.77% in 2015 and improving markedly to -3.72% in 2016. It became positive in 2017 at 8.66%, then increased further to 10.08% in 2018. The ROA decreased again to 7.37% in 2019 but remained positive, signaling ongoing profitability and asset utilization improvements compared to earlier years.
Four-Component Disaggregation of ROA
EOG Resources Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × | |||||
| Dec 31, 2017 | = | × | × | × | |||||
| Dec 31, 2016 | = | × | × | × | |||||
| Dec 31, 2015 | = | × | × | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Tax Burden
- The tax burden ratio was not reported for the years 2015 and 2016. From 2017 onwards, it shows a significant decline from 3.91 in 2017 to 0.81 in 2018, followed by a slight decrease to 0.77 in 2019, indicating a substantial reduction in the proportion of earnings paid as taxes over this period.
- Interest Burden
- The interest burden ratio data is absent for 2015 and 2016. From 2017 to 2019, the ratio improves markedly from 0.71 in 2017 to 0.95 in 2018, maintaining stability at 0.95 in 2019. This suggests a reduced impact of interest expenses on earnings before tax during these years.
- EBIT Margin
- The EBIT margin shows a steep recovery over the five-year period. Initially deeply negative at -76.33% in 2015, it improves to -16.68% in 2016, then crosses into positive territory with 8.35% in 2017. It peaks at 25.97% in 2018 before slightly decreasing to 21.46% in 2019. This trajectory indicates a significant enhancement in operating profitability and operational efficiency.
- Asset Turnover
- Asset turnover exhibits a mixed but overall improving trend from 2015 to 2019. It declines from 0.32 in 2015 to 0.26 in 2016, then increases progressively to 0.38 in 2017, 0.51 in 2018, and slightly decreases to 0.47 in 2019. This pattern suggests fluctuating but generally improving efficiency in using assets to generate sales, with peak turnover observed in 2018.
- Return on Assets (ROA)
- ROA follows a clear positive progression over time, moving from a negative return of -16.77% in 2015 to a less negative -3.72% in 2016. Subsequently, it crosses into positive returns with 8.66% in 2017, peaks at 10.08% in 2018, and slightly declines to 7.37% in 2019. This indicates a recovery and solidification in generating profits from total assets, though with a modest decrease in the last year observed.
Disaggregation of Net Profit Margin
EOG Resources Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Tax Burden
- The tax burden ratio is available only for the years 2017 through 2019. It shows a significant decline from 3.91 in 2017 to 0.81 in 2018, and further to 0.77 in 2019. This indicates a substantial improvement in tax efficiency or reduction in tax obligations relative to earnings during these years.
- Interest Burden
- The interest burden ratio starts at 0.71 in 2017, then rises sharply to 0.95 in 2018 and remains stable at 0.95 in 2019. This suggests that interest expenses, relative to earnings before interest and taxes, decreased significantly starting in 2018, implying better management or reduction of interest costs.
- EBIT Margin
- The EBIT margin shows a marked improvement over the entire period. It begins with large negative values of -76.33% in 2015 and -16.68% in 2016, reflecting substantial operating losses. From 2017 onward, a positive trend emerges with EBIT margins increasing to 8.35% in 2017, peaking at 25.97% in 2018, and slightly declining to 21.46% in 2019. This trend evidences a recovery and strengthening operating profitability over the years.
- Net Profit Margin
- Net profit margin follows a similar pattern to EBIT margin, starting with negative margins of -51.66% in 2015 and -14.33% in 2016. It then sharply improves to 23.04% in 2017 before gradually decreasing to 19.79% in 2018 and 15.74% in 2019. Despite the slight downward trend after 2017, the net profit margins remain positive, reflecting a successful turnaround from prior losses to sustained profitability.