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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- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
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Two-Component Disaggregation of ROE
Edwards Lifesciences Corp., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × |
Based on: 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), 10-K (reporting date: 2017-12-31).
- Return on Assets (ROA)
- The Return on Assets exhibited a generally positive trend over the five-year period. Starting at 10.25% in 2017, it increased steadily to 13.57% in 2018 and further to 16.14% in 2019. There was a noticeable decline in 2020 to 11.38%, likely reflecting challenging conditions during that year. However, the ROA rebounded strongly in 2021, reaching its highest point at 17.68%, indicating improved operational efficiency and asset utilization.
- Financial Leverage
- Financial leverage demonstrated a gradual decreasing trend across the period under review. From a ratio of 1.93 in 2017, it declined to 1.70 in 2018, 1.56 in 2019, then stabilized slightly at 1.58 in 2020, before further decreasing to 1.46 in 2021. This indicates a progressive reduction in the reliance on debt financing relative to equity, potentially reflecting a stronger equity base or conservative financing strategy.
- Return on Equity (ROE)
- Return on Equity reflected a pattern similar to ROA, with an overall growth trajectory accompanied by a dip in 2020. ROE increased from 19.74% in 2017 to 23% in 2018 and peaked at 25.24% in 2019. It then fell to 18% in 2020, before recovering sharply to 25.76% in 2021, its highest value in the series. This suggests variability in profitability attributable to shareholders, with a strong recovery indicating effective management of equity capital post-2020.
- Overall Insights
- The data points to a firm that improved its asset efficiency and shareholder returns over the five years, with a temporary setback in 2020. The concurrent decrease in financial leverage suggests a strengthening financial position by reducing dependency on debt. The patterns indicate effective management in navigating adverse conditions and a recovery that led to stronger financial performance by 2021.
Three-Component Disaggregation of ROE
Edwards Lifesciences Corp., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × |
Based on: 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), 10-K (reporting date: 2017-12-31).
- Net Profit Margin
- The net profit margin demonstrates a generally upward trend over the reported periods, increasing from 16.99% in 2017 to a peak of 28.73% in 2021. There was a slight dip in 2020 to 18.77%, likely influenced by external factors impacting profitability that year, but the margin recovered strongly the following year.
- Asset Turnover
- The asset turnover ratio shows moderate fluctuation but remains relatively stable over the time frame, starting at 0.6 in 2017, peaking at 0.7 in 2018, and settling around the low 0.6s in subsequent years. This indicates consistent efficiency in utilizing assets to generate sales, despite minor variations.
- Financial Leverage
- There is a clear declining trend in financial leverage, from 1.93 in 2017 down to 1.46 in 2021. This suggests a reduction in the degree to which the company is financing its assets with debt, implying a potentially lower financial risk profile over time.
- Return on Equity (ROE)
- ROE exhibits a pattern similar to net profit margin, rising from 19.74% in 2017 to 25.76% in 2021, with a notable decrease to 18% in 2020. The recovery and growth in ROE by 2021 indicate improved effectiveness in generating returns on shareholders' equity, despite the temporary setback in 2020.
Five-Component Disaggregation of ROE
Edwards Lifesciences Corp., decomposition of ROE
Based on: 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), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio showed significant variation from 2017 to 2018, increasing sharply from 0.56 to 0.95. From 2018 onwards, the ratio stabilized slightly below 1.0, maintaining levels near 0.9 through 2021. This indicates a reduction in effective tax rate impact on earnings after 2017, suggesting a more consistent tax environment or improved tax efficiency over recent years.
- Interest Burden
- The interest burden ratio remained relatively stable across the analyzed period, fluctuating narrowly between 0.96 and 0.99. This consistency reflects relatively stable interest expenses relative to earnings before interest and taxes (EBIT), indicating controlled financial costs and manageable debt service requirements.
- EBIT Margin
- The EBIT margin experienced considerable fluctuations. It decreased substantially from 30.8% in 2017 to 21.26% in 2018, rebounded to 27.3% in 2019, again declined to 21.26% in 2020, and increased sharply to 32.88% in 2021. This pattern suggests volatility in operating profitability, possibly reflecting varying cost structures, pricing power, or sales mix changes impacting operational efficiency across the years.
- Asset Turnover
- Asset turnover exhibited a mild upward trend from 0.6 in 2017 to a peak of 0.7 in 2018, followed by a gradual decline to 0.62 in 2021. Although the change is moderate, the slight reduction after 2018 could signal relative stagnation or inefficiency in asset utilization over the later periods.
- Financial Leverage
- Financial leverage consistently decreased from 1.93 in 2017 to 1.46 in 2021. This steady reduction implies a gradual decline in the reliance on debt financing or a strengthening of equity base, which generally indicates a more conservative capital structure and potentially lower financial risk.
- Return on Equity (ROE)
- Return on equity demonstrated variability, increasing from 19.74% in 2017 to a peak of 25.24% in 2019, then dropping to 18% in 2020 before recovering to 25.76% in 2021. These fluctuations mirror the trends seen in EBIT margin and leverage, illustrating how operating performance and capital structure adjustments influenced overall shareholder returns.
Two-Component Disaggregation of ROA
Edwards Lifesciences Corp., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × |
Based on: 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), 10-K (reporting date: 2017-12-31).
- Net Profit Margin
- The net profit margin exhibited a generally positive trend over the analyzed period. It increased from 16.99% in 2017 to 19.40% in 2018, followed by a more substantial rise to 24.08% in 2019. Despite a decline in 2020 to 18.77%, the margin rebounded significantly in 2021, reaching the highest value of 28.73%. This indicates improving profitability with some volatility, particularly in the year 2020.
- Asset Turnover
- Asset turnover showed modest fluctuations throughout the period. It increased from 0.6 in 2017 to 0.7 in 2018, suggesting higher efficiency in using assets to generate revenue. The ratio slightly decreased to 0.67 in 2019 and further declined to 0.61 in 2020. In 2021, it experienced a minor recovery to 0.62. Overall, asset utilization efficiency improved initially but faced some regression in the latter years with a slight recovery at the end.
- Return on Assets (ROA)
- Return on assets followed a trajectory similar to net profit margin, reflecting changes in profitability and asset efficiency. Beginning at 10.25% in 2017, ROA improved to 13.57% in 2018 and peaked at 16.14% in 2019. It dropped to 11.38% in 2020, paralleling the decrease in asset turnover and net profit margin, before rising markedly to 17.68% in 2021, the highest level observed during the period. This suggests that despite some operational challenges in 2020, the company was able to enhance its overall asset profitability substantially by 2021.
Four-Component Disaggregation of ROA
Edwards Lifesciences Corp., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × | |||||
| Dec 31, 2017 | = | × | × | × |
Based on: 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), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio exhibited a significant increase from 0.56 in 2017 to 0.95 in 2018, followed by a slight decline to 0.9 in 2019 and 2020, and a minor decrease to 0.88 in 2021. This indicates a substantial reduction in the effective tax impact after 2017, stabilizing at a high level thereafter.
- Interest Burden
- The interest burden ratio remained relatively stable over the five-year period, fluctuating moderately between 0.96 and 0.99. This stability suggests consistent management of interest expenses relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin demonstrated notable variability. It started at 30.8% in 2017, declined sharply to 21.26% in 2018, then recovered to 27.3% in 2019 before dropping again to 21.26% in 2020. By 2021, it had increased significantly to 32.88%, surpassing the initial 2017 level. This pattern indicates fluctuating operational profitability with a strong upward trend in the latest year.
- Asset Turnover
- Asset turnover showed moderate fluctuations, increasing from 0.6 in 2017 to a peak of 0.7 in 2018, followed by a gradual decrease to 0.67 in 2019, then 0.61 in 2020, and a slight recovery to 0.62 in 2021. Overall, the metric appears relatively stable with small variances, reflecting consistent efficiency in utilizing assets to generate sales.
- Return on Assets (ROA)
- ROA improved steadily over the period, beginning at 10.25% in 2017 and increasing to 13.57% in 2018 and 16.14% in 2019. It experienced a decline to 11.38% in 2020 but rebounded sharply to 17.68% in 2021, marking the highest value in the five-year span. This trend indicates an overall enhancement in the company’s ability to generate profit from its asset base, despite a temporary setback in 2020.
Disaggregation of Net Profit Margin
Edwards Lifesciences Corp., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × |
Based on: 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), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio experienced significant fluctuation over the observed period. It started relatively low at 0.56 in 2017, surged sharply to 0.95 in 2018, and then stabilized around 0.9 from 2019 to 2021. This indicates a substantial reduction in tax expenses relative to earnings before tax after 2017, maintaining a high proportion of pre-tax income after taxes in subsequent years.
- Interest Burden
- The interest burden ratio remained relatively stable across the five years, fluctuating only slightly between 0.96 and 0.99. This consistency suggests stable interest expenses in relation to earnings before interest and taxes, implying effective management of debt costs or interest obligations throughout the period.
- EBIT Margin
- The EBIT margin showed notable variability. Starting at a high level of 30.8% in 2017, it declined sharply to 21.26% in 2018, rebounded to 27.3% in 2019, again dropped to 21.26% in 2020, and reached a peak of 32.88% in 2021. The margin's fluctuations indicate variability in operating profitability, with a strong recovery and improvement in 2021 to the highest margin in the observed timeline.
- Net Profit Margin
- The net profit margin exhibited an overall upward trend despite some fluctuations. Starting from 16.99% in 2017, it increased to 19.4% in 2018, further improved to 24.08% in 2019, declined to 18.77% in 2020, and surged to 28.73% in 2021. The final year demonstrates a significant enhancement in net profitability, surpassing all previous years in the dataset.