Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
HP Inc., profitability ratios
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
The profitability profile from 2013 to 2018 exhibits a notable divergence between gross margin contraction and an increase in bottom-line efficiency. While the capacity to maintain high gross margins diminished over time, there was a significant improvement in net profitability and asset utilization toward the end of the period.
- Gross Profit Margin
- A period of relative stability was observed between 2013 and 2015, with margins peaking at 23.96%. A sharp decline occurred in 2016, where the margin fell to 18.65%, followed by a continuing downward trajectory to 18.25% by 2018.
- Operating and Net Profit Margins
- Operating margins remained relatively resilient, fluctuating within a narrow range between 5.29% and 7.36%. This suggests a level of stability in operating expense management despite the decline in gross margins. Net profit margins remained steady between 4.41% and 5.17% for most of the period, before experiencing a substantial increase to 9.11% in 2018.
- Return on Assets (ROA) and Return on Equity (ROE)
- Return on assets showed a strong upward trajectory, rising from a low of 4.26% in 2015 to a peak of 15.39% in 2018, indicating a marked increase in the efficiency of asset deployment. Return on equity experienced a decline during the initial years of the period, moving from 18.75% in 2013 to 16.40% in 2015.
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Return on Sales
Return on Investment
Gross Profit Margin
HP Inc., gross profit margin calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Gross profit | 10,669) | 9,578) | 8,998) | 24,759) | 26,615) | 25,918) | |
| Net revenue | 58,472) | 52,056) | 48,238) | 103,355) | 111,454) | 112,298) | |
| Profitability Ratio | |||||||
| Gross profit margin1 | 18.25% | 18.40% | 18.65% | 23.96% | 23.88% | 23.08% | |
| Benchmarks | |||||||
| Gross Profit Margin, Competitors2 | |||||||
| Apple Inc. | — | — | — | — | — | — | |
| Arista Networks Inc. | — | — | — | — | — | — | |
| Cisco Systems Inc. | — | — | — | — | — | — | |
| Dell Technologies Inc. | — | — | — | — | — | — | |
| Lumentum Holdings Inc. | — | — | — | — | — | — | |
| Super Micro Computer Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 2018 Calculation
Gross profit margin = 100 × Gross profit ÷ Net revenue
= 100 × 10,669 ÷ 58,472 = 18.25%
2 Click competitor name to see calculations.
The financial performance over the observed six-year period reveals a significant structural transition between 2015 and 2016, characterized by a substantial reduction in operational scale and a subsequent shift in profitability margins.
- Revenue and Gross Profit Volume
- Net revenue experienced a period of gradual decline from 112,298 million USD in 2013 to 103,355 million USD in 2015. A sharp contraction occurred in 2016, where revenue fell to 48,238 million USD. From 2016 to 2018, a recovery trend is evident, with net revenue increasing annually to reach 58,472 million USD. Gross profit followed a nearly identical trajectory, dropping from 24,759 million USD in 2015 to 8,998 million USD in 2016, before rising to 10,669 million USD by the end of the period.
- Gross Profit Margin Trends
- The gross profit margin remained relatively stable and showed slight improvement between 2013 and 2015, moving from 23.08% to a peak of 23.96%. However, a significant downward shift occurred in 2016, with the margin falling to 18.65%. Following this decline, the margin entered a period of gradual erosion, decreasing to 18.40% in 2017 and further to 18.25% in 2018.
- Profitability Analysis
- The data indicates a clear bifurcation in the company's profitability profile. The pre-2016 period was defined by higher margins averaging approximately 23.6%. The post-2016 period shows a new baseline of lower profitability. Despite the absolute growth in net revenue and gross profit from 2016 through 2018, the consistent decline in the gross profit margin suggests that cost of goods sold increased at a rate that outpaced revenue growth during this recovery phase.
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Operating Profit Margin
HP Inc., operating profit margin calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Earnings from operations | 4,064) | 3,519) | 3,549) | 5,471) | 7,185) | 7,131) | |
| Net revenue | 58,472) | 52,056) | 48,238) | 103,355) | 111,454) | 112,298) | |
| Profitability Ratio | |||||||
| Operating profit margin1 | 6.95% | 6.76% | 7.36% | 5.29% | 6.45% | 6.35% | |
| Benchmarks | |||||||
| Operating Profit Margin, Competitors2 | |||||||
| Apple Inc. | — | — | — | — | — | — | |
| Arista Networks Inc. | — | — | — | — | — | — | |
| Cisco Systems Inc. | — | — | — | — | — | — | |
| Dell Technologies Inc. | — | — | — | — | — | — | |
| Lumentum Holdings Inc. | — | — | — | — | — | — | |
| Super Micro Computer Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 2018 Calculation
Operating profit margin = 100 × Earnings from operations ÷ Net revenue
= 100 × 4,064 ÷ 58,472 = 6.95%
2 Click competitor name to see calculations.
The operational performance from 2013 to 2018 is characterized by a significant structural shift in scale and a subsequent stabilization of profitability margins.
- Revenue and Operational Earnings Trend
- Net revenue remained relatively stable between 2013 and 2015, consistently exceeding 100 billion USD. A sharp contraction occurred in 2016, with revenue falling to 48.2 billion USD, a decrease of approximately 53% from the previous year. Earnings from operations followed a downward trajectory, declining from a peak of 7.18 billion USD in 2014 to a low of 3.52 billion USD in 2017, before recovering to 4.06 billion USD in 2018.
- Operating Profit Margin Analysis
- Despite the reduction in absolute revenue and earnings, the operating profit margin exhibited a notable improvement in efficiency. After reaching a period low of 5.29% in 2015, the margin increased to 7.36% in 2016. This suggests that the contraction in scale was accompanied by a shift toward a more efficient cost structure or higher-margin revenue streams. The margin subsequently settled at 6.76% in 2017 and rose slightly to 6.95% in 2018.
- Profitability Correlation
- A divergence is observable between 2015 and 2016, where the operating profit margin expanded despite a significant drop in total volume. The subsequent growth in both net revenue and earnings from operations between 2017 and 2018 indicates a period of stabilization, with the company maintaining a higher margin profile than was present during the 2013-2015 period.
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Net Profit Margin
HP Inc., net profit margin calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net earnings | 5,327) | 2,526) | 2,496) | 4,554) | 5,013) | 5,113) | |
| Net revenue | 58,472) | 52,056) | 48,238) | 103,355) | 111,454) | 112,298) | |
| Profitability Ratio | |||||||
| Net profit margin1 | 9.11% | 4.85% | 5.17% | 4.41% | 4.50% | 4.55% | |
| Benchmarks | |||||||
| Net Profit Margin, Competitors2 | |||||||
| Apple Inc. | — | — | — | — | — | — | |
| Arista Networks Inc. | — | — | — | — | — | — | |
| Cisco Systems Inc. | — | — | — | — | — | — | |
| Dell Technologies Inc. | — | — | — | — | — | — | |
| Lumentum Holdings Inc. | — | — | — | — | — | — | |
| Super Micro Computer Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 2018 Calculation
Net profit margin = 100 × Net earnings ÷ Net revenue
= 100 × 5,327 ÷ 58,472 = 9.11%
2 Click competitor name to see calculations.
The financial performance between 2013 and 2018 is characterized by a significant structural shift in revenue scale accompanied by a substantial expansion in profitability margins toward the end of the period.
- Revenue and Earnings Volatility
- Net revenue remained relatively stable between 2013 and 2015, consistently exceeding 100 billion US dollars. A sharp contraction occurred in 2016, with revenue falling to 48.2 billion US dollars. Following this decline, a gradual recovery was observed, with revenue increasing to 58.5 billion US dollars by October 31, 2018. Net earnings followed a similar trajectory, decreasing from 5.1 billion US dollars in 2013 to a low of approximately 2.5 billion US dollars in 2016 and 2017, before surging to 5.3 billion US dollars in 2018.
- Net Profit Margin Trends
- From 2013 to 2015, the net profit margin exhibited minimal variance, trending slightly downward from 4.55% to 4.41%. A pivot occurred in 2016, where the margin increased to 5.17% despite the drastic reduction in total revenue, suggesting a shift toward more efficient operations. After a slight dip to 4.85% in 2017, the margin experienced a significant increase to 9.11% in 2018. This represents the highest level of profitability within the analyzed period, indicating a substantial improvement in the conversion of revenue into net income.
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Return on Equity (ROE)
HP Inc., ROE calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net earnings | 5,327) | 2,526) | 2,496) | 4,554) | 5,013) | 5,113) | |
| Total HP stockholders’ equity (deficit) | (639) | (3,408) | (3,889) | 27,768) | 26,731) | 27,269) | |
| Profitability Ratio | |||||||
| ROE1 | — | — | — | 16.40% | 18.75% | 18.75% | |
| Benchmarks | |||||||
| ROE, Competitors2 | |||||||
| Apple Inc. | — | — | — | — | — | — | |
| Arista Networks Inc. | — | — | — | — | — | — | |
| Cisco Systems Inc. | — | — | — | — | — | — | |
| Dell Technologies Inc. | — | — | — | — | — | — | |
| Lumentum Holdings Inc. | — | — | — | — | — | — | |
| Super Micro Computer Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 2018 Calculation
ROE = 100 × Net earnings ÷ Total HP stockholders’ equity (deficit)
= 100 × 5,327 ÷ -639 = —
2 Click competitor name to see calculations.
The financial performance from 2013 to 2018 exhibits a significant transition in capital structure alongside fluctuating net earnings. While profitability remained positive throughout the period, a shift from positive stockholders' equity to a deficit fundamentally altered the return on equity profile.
- Net Earnings Trends
- Net earnings remained relatively stable between 2013 and 2015, ranging from US$ 4,554 million to US$ 5,113 million. A substantial contraction was observed in 2016 and 2017, with earnings dropping to approximately US$ 2.5 billion. This downward trend reversed sharply by October 31, 2018, when net earnings reached a period high of US$ 5,327 million.
- Stockholders' Equity Volatility
- A stark transition in the capital base is evident. From 2013 to 2015, stockholders' equity was maintained at a consistent level near US$ 27 billion. However, 2016 marked a pivot to a deficit position, with equity falling to negative US$ 3,889 million. While the deficit narrowed in subsequent years, reaching negative US$ 639 million by 2018, the company operated with negative equity for the final three years of the analyzed period.
- Return on Equity (ROE) Interpretation
- During the initial phase of positive equity, ROE was strong and stable, recording 18.75% in both 2013 and 2014 before declining slightly to 16.40% in 2015. The absence of ROE values from 2016 through 2018 corresponds directly with the emergence of the stockholders' deficit. Because the equity base became negative, the traditional ROE calculation ceased to provide a meaningful measure of performance, as positive net earnings divided by negative equity would result in a mathematically negative but fundamentally misleading percentage.
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Return on Assets (ROA)
HP Inc., ROA calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net earnings | 5,327) | 2,526) | 2,496) | 4,554) | 5,013) | 5,113) | |
| Total assets | 34,622) | 32,913) | 29,010) | 106,882) | 103,206) | 105,676) | |
| Profitability Ratio | |||||||
| ROA1 | 15.39% | 7.67% | 8.60% | 4.26% | 4.86% | 4.84% | |
| Benchmarks | |||||||
| ROA, Competitors2 | |||||||
| Apple Inc. | — | — | — | — | — | — | |
| Arista Networks Inc. | — | — | — | — | — | — | |
| Cisco Systems Inc. | — | — | — | — | — | — | |
| Dell Technologies Inc. | — | — | — | — | — | — | |
| Lumentum Holdings Inc. | — | — | — | — | — | — | |
| Super Micro Computer Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 2018 Calculation
ROA = 100 × Net earnings ÷ Total assets
= 100 × 5,327 ÷ 34,622 = 15.39%
2 Click competitor name to see calculations.
The financial trajectory from 2013 to 2018 reveals a significant structural shift in the company's asset base and profitability efficiency, characterized by a transition toward a leaner operational model with higher returns.
- Net Earnings Performance
- Net earnings exhibited a period of gradual decline from 5,113 million USD in 2013 to a low of 2,496 million USD in 2016. However, a strong recovery trend followed, with earnings increasing significantly to 5,327 million USD by October 31, 2018, surpassing the levels observed at the start of the analyzed period.
- Total Assets Transformation
- A substantial contraction in total assets is observed between 2015 and 2016, where assets decreased from 106,882 million USD to 29,010 million USD. Following this sharp reduction, the asset base remained relatively stable with a slight upward trend, ending at 34,622 million USD in 2018.
- Return on Assets (ROA) Trends
- ROA remained consistently low between 2013 and 2015, fluctuating between 4.26% and 4.86%. A notable inflection point occurred in 2016; despite the decrease in net earnings, the massive reduction in the asset base led to a jump in ROA to 8.60%. This trend of improved asset efficiency accelerated through 2018, resulting in a peak ROA of 15.39%.
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