Generac Holdings Inc. (NYSE:GNRC)

Return on Assets (ROA)

The return on assets shows a generally positive trend from early 2018 through mid-2021, increasing from 8.67% in March 2018 to a peak of 13.92% in June 2021. Following this peak, there is a noticeable decline, with ROA decreasing to 9.95% by June 2022. The fluctuations indicate periods of improved asset profitability followed by some easing in later quarters.

Financial Leverage

Financial leverage demonstrates a consistent downward trend over the observed period, starting at 3.64 in March 2018 and falling to about 2.26 by June 2022. This steady decrease reflects a reduction in the company's reliance on debt financing or an increase in equity relative to debt, suggesting a strengthening balance sheet and potentially lower financial risk.

Return on Equity (ROE)

The return on equity peaks early at 34.93% in September 2018, then follows a generally declining trend until December 2019, reaching 24.41%. There is a brief recovery in 2021, with ROE rising back to nearly 31.16% in June 2021, before declining again to around 22.52% by June 2022. This pattern suggests variability in the company’s ability to generate profits from shareholder equity, likely influenced by operational results and changes in leverage.

Overall Insights

The data reveal that while the company improved asset efficiency and equity returns substantially up to mid-2021, both measures faced downward pressure thereafter. The consistent reduction in financial leverage indicates a strategic move towards de-risking the capital structure. The decoupling of stable or improving ROA with declining ROE in later periods can be partly explained by the lower financial leverage, which reduces the amplification effect of debt on equity returns.

The financial data reveals several notable trends across the reported periods. The net profit margin demonstrates a general upward trajectory from 2018 through the end of 2021, peaking in the first half of 2021 before experiencing a moderate decline into mid-2022. This suggests improvements in profitability efficiency until early 2021, followed by some erosion in margin performance.

Asset turnover remains relatively stable throughout the timeframe, fluctuating slightly but maintaining a range close to 0.8 to 0.86. This stability indicates consistent efficiency in using assets to generate revenue, without significant gains or losses in turnover rates over the five-year period.

Financial leverage shows a clear, steady decrease from 2018 to 2022, moving from a higher ratio above 3.5 down toward approximately 2.2. This reduction points to a deliberate strategy of lowering reliance on debt or other leveraged financing, potentially decreasing financial risk and interest burden.

Return on equity (ROE) follows a pattern that aligns somewhat with net profit margins but shows more pronounced fluctuations. ROE initially rises through 2018 and peaks around early 2019, then declines significantly into late 2019 and 2020. A recovery phase occurs in late 2020 and through 2021 with ROE increasing sharply, though it then tapers off again by mid-2022. These variations reflect changing overall profitability relative to shareholder equity, influenced by shifts in net income, asset efficiency, and leverage.

Summary of Key Insights

Net profit margin improved steadily until early 2021, followed by a gradual decline into 2022.

Asset turnover remained stable, reflecting consistent efficiency in asset utilization.

Financial leverage decreased continuously, indicating reduced dependence on debt financing.

Return on equity showed volatility with growth until early 2019, decline into 2020, recovery in 2021, and a slowdown in 2022.

Tax Burden

The tax burden ratio remained relatively stable over the analyzed periods, fluctuating slightly between 0.77 and 0.83. There is no significant upward or downward trend, indicating consistent tax efficiency with minor variations.

Interest Burden

The interest burden ratio demonstrated a gradual improvement, increasing from 0.84 in early 2018 to 0.95 by mid-2022. This suggests a reduction in interest expenses relative to earnings before interest and taxes, reflecting a possible strengthening in financial health or refinancing activities leading to lower interest costs.

EBIT Margin

The EBIT margin showed an overall upward trend from 15.45% in March 2018, peaking at 21.95% in mid-2021, before declining towards 15.99% by mid-2022. This pattern indicates improving operating profitability up to 2021, followed by a decrease likely attributable to rising costs or margin pressures in recent quarters.

Asset Turnover

Asset turnover ratios fluctuated moderately around the 0.8 to 0.86 range throughout the period. There was a slight decline from 0.84 in early 2018 down to a low of 0.77 in late 2020 and early 2022, with a brief recovery in the middle of 2021. This points to relatively stable but slightly diminishing efficiency in using assets to generate sales over time.

Financial Leverage

Financial leverage decreased steadily from 3.64 in early 2018 to approximately 2.2 by mid-2022. This downward trend suggests a reduction in the use of debt or a strengthening of equity capital, indicating a more conservative capital structure in recent years.

Return on Equity (ROE)

ROE showed a decreasing trend from a high of nearly 35% in late 2018 down to about 22.5% by mid-2022. The decline in ROE reflects the combined effects of lowering financial leverage and decreasing profitability margins towards the end of the period, which have partially offset the benefits of improved tax and interest burden ratios.

Net Profit Margin

The net profit margin exhibits a general upward trend from early 2018 through 2021. Starting at approximately 10.35% in the first quarter of 2018, it gradually increases, reaching a peak of about 16.18% in mid-2021. This indicates improving profitability over this period. However, from the end of 2021 into mid-2022, the margin shows a declining trend, falling to around 12.28%, which may suggest emerging pressures on profit margins or increased costs impacting profitability.

Asset Turnover

The asset turnover ratio remains relatively stable throughout the period, fluctuating modestly between 0.77 and 0.86. Early years (2018-2019) show slight variations around 0.83 to 0.85, followed by a gradual decrease to around 0.77 by the end of 2020. A recovery is observed in mid-2021, with a peak at 0.86, but this again dips below 0.80 in early 2022 before improving slightly by mid-2022. Overall, asset efficiency appears to experience minor volatility but no significant long-term directional change.

Return on Assets (ROA)

ROA follows a pattern similar to net profit margin, illustrating a general improvement from 8.67% in early 2018 to a peak of about 13.92% in mid-2021. This enhancement indicates more effective use of assets to generate earnings. After reaching this peak, ROA declines steadily, dropping to approximately 9.95% by mid-2022. The decline alongside a stable to slightly declining asset turnover suggests the decrease in ROA may be influenced more by profit margins rather than asset utilization.

Overall Insights

Profitability measures show consistent improvement from 2018 through mid-2021, reflecting enhanced operational performance during this timeframe. Both net profit margin and ROA achieve their highest values in 2021, implying robust profit generation and effective asset use. Post-2021, there is a noticeable regression in both metrics, indicating a potential slowdown or increased challenges. The relatively stable asset turnover suggests that fluctuations in ROA are primarily attributable to changes in profitability rather than asset management. Monitoring factors driving the recent decline in margins and returns will be important for future performance assessment.

The analysis of the financial ratios over the reported periods reveals several notable trends and fluctuations in operational efficiency and profitability metrics.

Tax Burden

The tax burden ratio has remained relatively stable, fluctuating slightly between 0.77 and 0.83 across the periods. This consistency indicates a steady proportion of earnings retained after taxes without significant changes in tax-related expenses or benefits.

Interest Burden

The interest burden ratio shows a gradual improvement over time, increasing from around 0.84 in early 2018 to about 0.95 by mid-2022. This upward trend suggests a reduction in interest expenses relative to earnings before interest and taxes, indicative of better debt management or lowered interest costs.

EBIT Margin

The EBIT margin exhibits a generally positive trajectory from 15.45% in early 2018 to a peak near 21.95% in mid-2021. Subsequent quarters show some decline, settling near 16% by mid-2022. This pattern reflects a phase of growing operational profitability followed by a moderation, possibly due to increased costs or market pressures affecting margins.

Asset Turnover

Asset turnover has remained mostly stable with minor fluctuations, generally around the 0.8 to 0.85 range. The slight decline observed after 2020, reaching near 0.77 in early 2022, may signify a decrease in revenue generation efficiency relative to asset base during that period.

Return on Assets (ROA)

Return on assets mirrors the EBIT margin trend to an extent, improving from approximately 8.7% in early 2018 to a high exceeding 13% by 2021. Afterward, the ROA decreases, nearing 10% by mid-2022. This indicates that the company enhanced its overall profitability on asset investment before facing recent challenges impacting asset efficiency or profitability.

In summary, the company experienced an overall enhancement in profitability and interest cost management from 2018 through 2021, evidenced by rising EBIT margins, interest burden ratios, and return on assets. Concurrently, asset turnover remained relatively steady, though it slightly declined in later periods, which along with the reduced EBIT margin and ROA post-2021, points to potential operational or market challenges impacting efficiency and earnings in the most recent quarters.

Tax Burden

The tax burden ratio has generally remained stable across the observed periods, fluctuating within a narrow range from 0.77 to 0.83. There is no significant upward or downward trend, indicating consistent tax expense management relative to income before taxes.

Interest Burden

The interest burden ratio shows a gradual improvement over time, increasing from 0.84 in early 2018 to around 0.95 in 2022. This suggests a reduction in interest expense relative to earnings before interest and taxes, reflecting either lower interest costs or improved operating performance before interest expenses.

EBIT Margin

The EBIT margin demonstrates a positive trend from 2018 through 2021, rising from approximately 15.45% at the start of 2018 to a peak of 21.95% in mid-2021. However, there is a noticeable decline beginning in late 2021 through mid-2022, with the margin falling back to around 15.99%. This indicates an improvement in operating profitability during most of the period, followed by a recent contraction.

Net Profit Margin

The net profit margin follows a similar pattern to the EBIT margin, showing steady growth from about 10.35% at the start of 2018 to a high of approximately 16.18% in mid-2021. After this peak, the margin declines steadily to around 12.28% in mid-2022. The trend suggests improved overall profitability and cost management up to 2021, with a subsequent decrease potentially tied to increased costs, reduced revenues, or other operational challenges.