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
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Analysis of Revenues
- Analysis of Debt
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Two-Component Disaggregation of ROE
General Mills Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| May 26, 2019 | = | × | |||
| May 27, 2018 | = | × | |||
| May 28, 2017 | = | × | |||
| May 29, 2016 | = | × | |||
| May 31, 2015 | = | × | |||
| May 25, 2014 | = | × |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
- Return on Assets (ROA)
- The ROA experienced fluctuations over the observed period. Starting at 7.88% in May 2014, it declined sharply to 5.56% in May 2015. Subsequently, it rebounded to 7.82% in May 2016, followed by a slight decrease to 7.6% in May 2017. A gradual downward trend ensued, with ROA decreasing to 6.96% in May 2018 and further to 5.82% by May 2019. Overall, the ROA shows variability but tends to decline towards the end of the period.
- Financial Leverage
- Financial leverage exhibited an upward trend during the initial years, increasing from 3.54 in May 2014 to a peak of 5.04 in May 2017. After reaching this peak, leverage slightly decreased to 4.99 in May 2018 and further declined to 4.27 in May 2019. The data suggest an increase in leverage through 2017, followed by a moderate reduction in the subsequent two years.
- Return on Equity (ROE)
- ROE showed notable variation throughout the period. Starting at 27.92% in May 2014, it decreased to 24.44% in May 2015. Subsequently, it experienced a substantial rise, reaching a peak of 38.3% in May 2017. After this peak, ROE declined steadily to 34.7% in May 2018 and further down to 24.85% in May 2019. This trend indicates significant improvement in mid-period performance, followed by a decline nearing the initial levels by the end of the period.
Three-Component Disaggregation of ROE
General Mills Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| May 26, 2019 | = | × | × | ||||
| May 27, 2018 | = | × | × | ||||
| May 28, 2017 | = | × | × | ||||
| May 29, 2016 | = | × | × | ||||
| May 31, 2015 | = | × | × | ||||
| May 25, 2014 | = | × | × |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
- Net Profit Margin
- The net profit margin exhibited some fluctuations throughout the observed periods. It began at 10.19% in 2014, decreased to 6.93% in 2015, then rebounded to a peak of 13.54% in 2018 before declining again to 10.39% in 2019. This indicates variability in profitability with a notable high in 2018, suggesting a period of improved cost management or pricing power that was not fully sustained.
- Asset Turnover
- Asset turnover showed a generally declining trend over the years. It started at 0.77 in 2014, slightly increased to 0.8 in 2015, and then steadily decreased to a low of 0.51 in 2018, followed by a small recovery to 0.56 in 2019. This pattern points to a decreased efficiency in using assets to generate revenue during the majority of the period, potentially indicating underutilization of assets or a shift towards less asset-intensive operations.
- Financial Leverage
- Financial leverage increased significantly from 3.54 in 2014 to a peak of 5.04 in 2017, before gradually decreasing to 4.27 in 2019. This trend suggests an increasing reliance on debt or other liabilities to finance assets during the middle years, with a subsequent effort to reduce leverage in the later periods. The high leverage ratios may have contributed to elevated financial risk during the peak years.
- Return on Equity (ROE)
- Return on equity showed a volatile pattern, starting at 27.92% in 2014, dipping to 24.44% in 2015, then rising sharply to a high of 38.3% in 2017. After 2017, ROE declined to 24.85% in 2019. The fluctuations in ROE appear to correlate with changes in profit margin and financial leverage, reflecting the combined impact of profitability, asset efficiency, and leverage on shareholder returns.
Five-Component Disaggregation of ROE
General Mills Inc., decomposition of ROE
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
- Tax Burden
- The tax burden ratio showed a generally increasing trend from 0.67 in 2014 to a peak of 0.97 in 2018, followed by a decline to 0.83 in 2019. This indicates fluctuations in the effective tax rate impacting net profitability.
- Interest Burden
- The interest burden ratio declined steadily over the period, from 0.89 in 2014 to 0.80 in 2019. This suggests a gradual increase in interest expenses relative to earnings before interest and taxes, potentially reflecting higher debt costs or leverage.
- EBIT Margin
- The EBIT margin experienced volatility, starting at 16.9% in 2014, dropping to a low of 12.12% in 2015, then recovering and stabilizing around the 16% range before declining slightly to 15.7% in 2019. The variation reflects changes in operational efficiency and cost management.
- Asset Turnover
- Asset turnover decreased notably, from 0.77 in 2014 to a low of 0.51 in 2018, before slightly improving to 0.56 in 2019. This trend indicates reduced efficiency in utilizing assets to generate sales over the period.
- Financial Leverage
- Financial leverage increased significantly from 3.54 in 2014 to a peak of 5.04 in 2017 and then gradually decreased to 4.27 by 2019. This reflects a rising reliance on debt financing followed by modest deleveraging towards the end of the period.
- Return on Equity (ROE)
- ROE showed a volatile pattern, initially decreasing from 27.92% in 2014 to 24.44% in 2015, then peaking at 38.3% in 2017 before declining again to 24.85% in 2019. The fluctuations correlate with changes in profit margins, financial leverage, and asset efficiency throughout the years.
Two-Component Disaggregation of ROA
General Mills Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| May 26, 2019 | = | × | |||
| May 27, 2018 | = | × | |||
| May 28, 2017 | = | × | |||
| May 29, 2016 | = | × | |||
| May 31, 2015 | = | × | |||
| May 25, 2014 | = | × |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
- Net Profit Margin
- The net profit margin exhibited some variability during the analyzed periods. It started at 10.19% in May 2014, declined to a lower point of 6.93% in May 2015, then showed a recovery to 10.25% in May 2016. From 2016 to 2018, there was a steady increase, reaching its peak at 13.54% in May 2018. However, by May 2019, the margin declined again to 10.39%, indicating some volatility but generally maintaining a range around 10%.
- Asset Turnover
- Asset turnover demonstrated a downward trend over the examined years. Initially, it was 0.77 in May 2014 and slightly increased to 0.80 in May 2015. After this peak, the ratio gradually decreased, dropping to 0.76 in May 2016 and further declining to 0.72 in May 2017. A more pronounced decrease occurred between 2017 and 2018, falling to 0.51, with a marginal increase to 0.56 in May 2019. This suggests a decline in efficiency in utilizing assets to generate revenue.
- Return on Assets (ROA)
- Return on assets followed a pattern similar to the net profit margin. The ROA was 7.88% in 2014, decreased to 5.56% in 2015, then improved to 7.82% in 2016. Following this, it remained relatively stable around 7.6% in 2017 and slightly decreased to 6.96% in 2018. The ratio dropped again to 5.82% in 2019, suggesting a reduction in the company's ability to generate net income from its asset base over the period.
Four-Component Disaggregation of ROA
General Mills Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| May 26, 2019 | = | × | × | × | |||||
| May 27, 2018 | = | × | × | × | |||||
| May 28, 2017 | = | × | × | × | |||||
| May 29, 2016 | = | × | × | × | |||||
| May 31, 2015 | = | × | × | × | |||||
| May 25, 2014 | = | × | × | × |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
- Tax Burden
- The tax burden ratio shows an overall increasing trend from 0.67 in 2014 to a peak of 0.97 in 2018, followed by a decrease to 0.83 in 2019. This suggests that the effective tax rate has generally increased over the years with some reduction in the latest period.
- Interest Burden
- The interest burden ratio has exhibited a gradual decline over the period, moving from 0.89 in 2014 to 0.80 in 2019. This indicates a decreasing portion of earnings consumed by interest expenses, potentially reflecting lower interest costs or improved interest coverage.
- EBIT Margin
- The EBIT margin percentage reveals some volatility, starting at 16.9% in 2014, decreasing sharply to 12.12% in 2015, then recovering and stabilizing around the mid-16% range until 2018, before dipping slightly to 15.7% in 2019. This pattern suggests fluctuations in operating profitability with a generally stable margin after the initial decline.
- Asset Turnover
- Asset turnover has declined considerably from 0.77 in 2014 to a low of 0.51 in 2018, with a minor uptick to 0.56 in 2019. This downward trend indicates decreasing efficiency in generating sales from assets, although the slight recovery in the last year may signal early improvement.
- Return on Assets (ROA)
- ROA has followed a pattern similar to EBIT margin and asset turnover, with a decline from 7.88% in 2014 to 5.56% in 2015, a rebound to around 7.6-7.82% for the next two years, and subsequent gradual decreases to 5.82% in 2019. This reflects challenges in generating returns from assets, consistent with observed declines in asset turnover and variations in profitability.
Disaggregation of Net Profit Margin
General Mills Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| May 26, 2019 | = | × | × | ||||
| May 27, 2018 | = | × | × | ||||
| May 28, 2017 | = | × | × | ||||
| May 29, 2016 | = | × | × | ||||
| May 31, 2015 | = | × | × | ||||
| May 25, 2014 | = | × | × |
Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).
- Tax Burden
- The tax burden ratio exhibited a generally increasing trend from 0.67 in May 2014 to a peak of 0.97 in May 2018, indicating a higher proportion of earnings retained after tax during this period. However, in the subsequent year ending May 2019, the ratio declined to 0.83, suggesting a partial reversal from the previous peak.
- Interest Burden
- The interest burden ratio showed a gradual decline over the analyzed years, moving from 0.89 in May 2014 to 0.80 in May 2019. This decrease indicates a trend of higher interest expenses relative to earnings before interest and taxes, which could reflect increased borrowing costs or rising debt levels.
- EBIT Margin
- The EBIT margin percentage fluctuated across the years, starting at 16.9% in May 2014, decreasing notably to 12.12% in May 2015, then recovering and stabilizing around the mid-16% range from May 2016 through May 2018. The margin dipped slightly to 15.7% by May 2019, indicating moderate variability but overall maintaining healthy operating profitability.
- Net Profit Margin
- The net profit margin followed a variable pattern, markedly decreasing from 10.19% in May 2014 to a low of 6.93% in May 2015. It then rebounded consistently, reaching a peak of 13.54% in May 2018 before declining again to 10.39% in May 2019. The fluctuations suggest impacts from operational efficiency, tax rates, and interest expenses influencing the bottom-line profitability.