Estée Lauder Cos. Inc. (NYSE:EL)

Return on Assets (ROA)

The Return on Assets exhibited significant fluctuations over the analyzed period. It peaked at 13.57% in June 30, 2019, followed by a sharp decline to 3.85% in June 30, 2020. This was succeeded by a recovery to 13.06% in June 30, 2021. Subsequently, ROA experienced a gradual decline, reaching 4.3% by June 30, 2023. Overall, the trend shows volatility with a general downward movement towards the end of the period.

Financial Leverage

Financial leverage increased steadily from 2.68 in June 30, 2018 to 4.52 in June 30, 2020, indicating rising use of debt relative to equity during this interval. Following this peak, leverage decreased to 3.63 in June 30, 2021, then slightly increased again, reaching 4.19 by June 30, 2023. The data suggests an overall upward trend in leverage, with some fluctuations after 2020.

Return on Equity (ROE)

Return on Equity demonstrated marked volatility throughout the six-year period. ROE increased sharply from 23.63% in 2018 to a high of 40.7% in 2019. It then declined significantly to 17.38% in 2020 before rising to a peak of 47.38% in 2021. Afterward, it decreased to 18.01% by June 30, 2023. This pattern mirrors the fluctuations seen in ROA but with more pronounced peaks and troughs.

Net Profit Margin

The net profit margin exhibited significant fluctuations during the period from 2018 to 2023. It initially increased from 8.1% in 2018 to a peak of 17.7% in 2021, indicating improved profitability. However, this was followed by a decline, reaching 6.32% in 2023, which suggests a deterioration in operational efficiency or increased costs impacting net profitability.

Asset Turnover

The asset turnover ratio showed a downward trend overall. Starting at 1.09 in 2018, it slightly increased to 1.13 in 2019 but then consistently declined to 0.68 by 2023. This decline reflects a reduced efficiency in using assets to generate revenue over the years, which may indicate challenges in asset management or slower revenue growth relative to asset base expansion.

Financial Leverage

Financial leverage increased steadily throughout the period, moving from 2.68 in 2018 to 4.19 in 2023. The rising leverage suggests that the company progressively relied more on debt relative to equity to finance its assets. While this may enhance return potential, it also implies increased financial risk due to higher debt exposure.

Return on Equity (ROE)

ROE demonstrated considerable volatility across the years. It rose sharply from 23.63% in 2018 to a high of 47.38% in 2021, coinciding with peaks in net profit margin and leverage levels. However, the sharp decline to 18.01% in 2023 points to reduced overall efficiency in generating returns on shareholders’ equity, potentially influenced by lower profitability and asset turnover despite continued high leverage.

Tax Burden

The tax burden ratio exhibited fluctuations over the analyzed period, initially rising from 0.56 in 2018 to a peak of 0.86 in 2021, followed by a gradual decline to 0.72 by 2023. This suggests variability in the effective tax rate impacting net income over the years.

Interest Burden

The interest burden ratio remained relatively stable, with minor deviations. It stayed close to 0.94-0.95 between 2018 and 2022, but saw a decline to 0.85 in 2023. This indicates a slight increase in interest expense relative to earnings before interest and taxes in the most recent year.

EBIT Margin

The EBIT margin showed significant volatility. It increased from 15.34% in 2018 to 21.58% in 2021, reflecting improved operating profitability. However, it decreased sharply to 10.36% in 2023, indicating reduced operational efficiency or increased costs affecting profitability.

Asset Turnover

Asset turnover declined steadily from 1.09 in 2018 to 0.68 in 2023. This downward trend indicates decreasing efficiency in using assets to generate revenue, potentially reflecting increased asset base or reduced sales volume.

Financial Leverage

Financial leverage increased overall, moving from 2.68 in 2018 to 4.19 in 2023, peaking at 4.52 in 2020. This upward trend suggests higher reliance on debt financing, which could amplify both potential returns and risks.

Return on Equity (ROE)

ROE showed considerable fluctuations, reaching a high of 47.38% in 2021, preceded and followed by notable declines to 17.38% in 2020 and 18.01% in 2023 respectively. The peak years correspond with higher EBIT margins and stable interest burden, while lower ROE years coincide with reduced profitability and asset turnover.

An analysis of the financial performance over the six-year period reveals several notable trends in profitability, asset efficiency, and overall returns.

Net Profit Margin

The net profit margin exhibited considerable fluctuations, starting at 8.1% in mid-2018 and increasing to a peak of 17.7% in mid-2021. This was followed by a decline to 13.47% in mid-2022, and further down to 6.32% in mid-2023. The initially upward trend suggests improving profitability over the early years, but the subsequent decline indicates recent challenges in controlling costs or sustaining revenue margins.

Asset Turnover

Asset turnover ratio showed a declining trend over the period. It started at 1.09 in mid-2018, slightly increased to 1.13 in 2019, then decreased significantly through the following years, reaching 0.68 by mid-2023. This declining asset turnover indicates reduced efficiency in utilizing assets to generate sales, which may warrant a review of asset management strategies or sales effectiveness.

Return on Assets (ROA)

The return on assets mirrored the patterns observed in net profit margin, with significant volatility. The ROA rose from 8.82% in 2018 to a high of 13.57% in 2019, then declined to 3.85% in 2020. It recovered to 13.06% in 2021, followed by a gradual decrease to 11.43% and then to 4.3% in 2023. These fluctuations indicate varying capability in generating earnings from assets, which may be influenced by the same factors impacting profitability and asset turnover.

Overall, the data suggest that while the company demonstrated periods of strong profitability and returns in the earlier years, recent periods have seen declines in both profit margins and asset utilization efficiency. This combination points to potential operational or market challenges affecting financial performance.

Tax Burden

The tax burden ratio exhibited fluctuations over the analyzed periods. It started relatively low at 0.56 in mid-2018, increased sharply to 0.78 in 2019, declined to 0.66 in 2020, then peaked at 0.86 in 2021. Subsequent years saw a decline again to 0.79 in 2022 and further to 0.72 in 2023. Overall, this indicates variability in the effective tax rate impacting net income, with the highest tax impact observed in 2021.

Interest Burden

The interest burden ratio remained generally stable near 0.95 from 2018 through 2022, with a slight dip to 0.87 in 2020 and a more noticeable decrease to 0.85 in 2023. This suggests consistent interest expense relative to earnings before interest and taxes during most years, with a modest increase in interest costs or earnings volatility impacting this metric in 2020 and 2023.

EBIT Margin

The EBIT margin displayed significant variability. It rose modestly from 15.34% in 2018 to 16.36% in 2019, then dropped sharply to 8.36% in 2020, possibly reflecting operational challenges. The margin rebounded strongly to 21.58% in 2021, followed by a decline to 17.96% in 2022 and a further substantial decrease to 10.36% in 2023. This pattern indicates fluctuating operational profitability, with peak efficiency in 2021 but notable declines in the most recent year.

Asset Turnover

The asset turnover ratio trended downward over the period. Starting at 1.09 in 2018 and increasing slightly to 1.13 in 2019, the ratio then fell to 0.80 in 2020, continued declining to 0.74 in 2021, recovered somewhat to 0.85 in 2022, but dropped again to 0.68 in 2023. This indicates a general decrease in the efficiency of asset utilization to generate sales, with some intermittent improvement in 2022.

Return on Assets (ROA)

The return on assets showed considerable volatility, mirroring some trends seen in other ratios. It increased markedly from 8.82% in 2018 to a peak of 13.57% in 2019. A sharp decline to 3.85% followed in 2020, then a recovery to 13.06% in 2021 and a moderate decrease to 11.43% in 2022. In 2023, ROA fell significantly to 4.30%. This reflects fluctuations in overall asset profitability, with peak performance in 2019 and 2021, contrasted by weak outcomes in 2020 and 2023.

Tax Burden

The tax burden ratio exhibits variability over the observed periods, initially increasing from 0.56 in 2018 to a peak of 0.86 in 2021, before declining to 0.72 by 2023. This suggests fluctuating effective tax rates impacting profitability after tax, with a notable decrease in 2023 compared to the peak year.

Interest Burden

The interest burden ratio remains relatively stable between 0.85 and 0.95 across the years, indicating consistent interest expense levels relative to earnings before interest and taxes. However, a slight decline in 2023 to 0.85 is observed, which may reflect increased interest expenses or other financial costs in that year.

EBIT Margin

The EBIT margin displays significant fluctuations, starting at 15.34% in 2018, peaking at 21.58% in 2021, and subsequently decreasing to 10.36% in 2023. The margin’s sharp increase in 2021 suggests a period of improved operational efficiency or revenue growth, while the decline in subsequent years points to rising costs or lower operating income relative to sales.

Net Profit Margin

The net profit margin shows a similar pattern to the EBIT margin, rising from 8.1% in 2018 to a high of 17.7% in 2021, followed by a decrease to 6.32% in 2023. This indicates that net profitability improved markedly until 2021 but deteriorated significantly thereafter, potentially due to increased costs, tax impacts, or interest expenses reducing the bottom-line profitability.