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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- Statement of Comprehensive Income
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Geographic Areas
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Earnings (P/E) since 2005
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Two-Component Disaggregation of ROE
Hershey Co., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × |
Based on: 10-K (reporting date: 2022-12-31), 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).
- Return on Assets (ROA)
- The Return on Assets exhibits a slight decline from 15.29% in 2018 to 14% in 2020, followed by a modest recovery to 15.02% by 2022. This indicates relatively stable asset profitability with minor fluctuations over the analyzed period.
- Financial Leverage
- The Financial Leverage ratio shows a consistent downward trend, decreasing from 5.51 in 2018 to 3.32 in 2022. This suggests a reduced reliance on debt financing relative to equity, reflecting a possible strategy towards lower financial risk and improved capital structure stability.
- Return on Equity (ROE)
- The Return on Equity experienced a notable decline from a high of 84.19% in 2018 to 49.85% in 2022. Despite remaining robust, this significant decrease points to a diminishing rate of return generated on shareholders' equity, which may be influenced by the concurrent reduction in financial leverage.
Three-Component Disaggregation of ROE
Hershey Co., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
Based on: 10-K (reporting date: 2022-12-31), 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).
- Net Profit Margin
- The net profit margin exhibits a generally stable pattern with minor fluctuations over the analyzed period. It decreased slightly from 15.11% in 2018 to 14.4% in 2019, then increased to a peak of 16.47% in 2021 before experiencing a moderate decline to 15.79% in 2022. This indicates relatively consistent profitability with modest variations year to year.
- Asset Turnover
- The asset turnover ratio shows a declining trend from 1.01 in 2018 to a low of 0.86 in 2021, suggesting a reduction in the efficiency with which assets are used to generate sales. However, there is a slight recovery in 2022, with the ratio rising to 0.95. Overall, the trend indicates some challenges in asset utilization efficiency during the earlier years with partial improvement in the final year reviewed.
- Financial Leverage
- Financial leverage demonstrates a consistent decrease across the period. Starting at 5.51 in 2018, the ratio steadily declines each year, reaching 3.32 by 2022. This points to a progressive reduction in the company’s reliance on debt or borrowed funds, indicating a more conservative financial structure over time.
- Return on Equity (ROE)
- Return on equity shows a clear downward trend throughout the observed years. The figure drops substantially from an exceptionally high 84.19% in 2018 to 49.85% in 2022. This decline suggests reduced profitability generated from shareholders' equity, which may be influenced by the simultaneous decreases in financial leverage and asset turnover, impacting the company’s overall return to equity holders.
Five-Component Disaggregation of ROE
Hershey Co., decomposition of ROE
Based on: 10-K (reporting date: 2022-12-31), 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).
- Tax Burden
- The tax burden ratio remained relatively stable over the observed years, with values fluctuating slightly between 0.82 and 0.86. This indicates consistent effective tax management, with a minor increase observed in the latest year at 0.86.
- Interest Burden
- The interest burden ratio also showed stability, maintaining levels between 0.90 and 0.93. There was a slight upward trend starting in 2021, suggesting a marginal reduction in interest expenses relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin exhibited variability, starting at 20.07% in 2018, dipping to 19.23% in 2019, then increasing to a peak of 21.42% in 2021 before falling back to 19.74% in 2022. This pattern indicates fluctuations in operational profitability with a notable peak in 2021 but a decline thereafter.
- Asset Turnover
- Asset turnover showed a decreasing trend from 1.01 in 2018 to 0.86 in 2021, followed by a recovery to 0.95 in 2022. This suggests a decline in efficiency in utilizing assets to generate revenue over the first four years, partially reversing in the last year.
- Financial Leverage
- Financial leverage decreased consistently each year, moving from 5.51 in 2018 down to 3.32 in 2022. This indicates a deliberate reduction in the use of debt relative to equity, reflecting a more conservative capital structure over time.
- Return on Equity (ROE)
- Return on equity demonstrated a clear downward trajectory, dropping from a high of 84.19% in 2018 to 49.85% in 2022. While remaining robust, this decline reflects reduced profitability for shareholders, which may be influenced by the trends in operational efficiency, leverage, and margins observed.
Two-Component Disaggregation of ROA
Hershey Co., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × |
Based on: 10-K (reporting date: 2022-12-31), 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).
- Net Profit Margin
- The net profit margin exhibits a generally positive trend, starting at 15.11% in 2018 and peaking at 16.47% in 2021 before a slight decline to 15.79% in 2022. This indicates relatively stable profitability with minor fluctuations, suggesting effective management of costs and revenue generation over the years.
- Asset Turnover
- The asset turnover ratio shows a decreasing trend from 1.01 in 2018 to a low of 0.86 in 2021, followed by a modest recovery to 0.95 in 2022. This pattern reflects a reduction in the efficiency of using assets to generate sales through 2021, with some improvement in the most recent year, which may indicate changes in asset management or sales performance.
- Return on Assets (ROA)
- ROA demonstrates a slight decline from 15.29% in 2018 to 14% in 2020, followed by stabilization and an increase to 15.02% in 2022. Despite fluctuations, the ROA remains relatively strong, suggesting consistent overall profitability relative to the asset base. The increase in 2022 may be attributable to improved profit margins or asset utilization.
Four-Component Disaggregation of ROA
Hershey Co., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | × | |||||
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × |
Based on: 10-K (reporting date: 2022-12-31), 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).
- Tax Burden
- The tax burden ratio remained relatively stable over the five-year period, fluctuating slightly between 0.82 and 0.86. Notably, it increased from 0.82 in 2021 to 0.86 in 2022, indicating a marginal increase in the proportion of earnings retained after taxes in the latest year.
- Interest Burden
- The interest burden ratio showed a generally consistent upward trend from 0.91 in 2018 to 0.93 in both 2021 and 2022. This suggests a slight improvement in managing interest expenses relative to earnings before interest and taxes over the period examined.
- EBIT Margin
- The EBIT margin exhibited moderate variability throughout the years. It decreased from 20.07% in 2018 to 19.23% in 2019, rebounded to a peak of 21.42% in 2021, and then declined again to 19.74% in 2022. This pattern indicates fluctuations in operational profitability, with the highest margin achieved in 2021.
- Asset Turnover
- Asset turnover decreased from 1.01 in 2018 to a low of 0.86 in 2021, before showing partial recovery to 0.95 in 2022. This decline over the earlier years points to a reduced efficiency in using assets to generate revenue, with some improvement seen in the final year of the period.
- Return on Assets (ROA)
- ROA followed a slightly declining trend from 15.29% in 2018 to a low of 14% in 2020, then improved marginally to 15.02% in 2022. Despite the variations, the overall return on assets remained fairly stable, reflecting consistent profitability relative to asset base over the period.
Disaggregation of Net Profit Margin
Hershey Co., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
Based on: 10-K (reporting date: 2022-12-31), 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).
- Tax Burden
- The tax burden ratio remained relatively stable over the five-year period, fluctuating slightly between 0.82 and 0.86. The ratio was at 0.83 in 2018 and 2019, increased to 0.85 in 2020, dipped to 0.82 in 2021, and rose again to 0.86 in 2022. These minor fluctuations suggest consistent tax expenses relative to pre-tax income without significant volatility.
- Interest Burden
- The interest burden ratio showed a modest upward trend over the period, increasing from 0.91 in 2018 to 0.93 in 2022. This indicates a slight improvement in the company’s ability to manage interest expenses, with a small reduction in the proportion of earnings consumed by interest costs.
- EBIT Margin
- The EBIT margin demonstrated some variability during the observed years. After a decrease from 20.07% in 2018 to 19.23% in 2019, it rebounded to 20.27% in 2020 and further increased to 21.42% in 2021. However, in 2022, there was a decline to 19.74%. This pattern suggests that operating profitability improved through 2021 but faced challenges in 2022, potentially due to increased operational costs or pricing pressures.
- Net Profit Margin
- The net profit margin experienced a gradual upward trend until 2021, improving from 15.11% in 2018 to a peak of 16.47% in 2021. In 2022, it decreased to 15.79%, indicating a slight decline in overall profitability after accounting for all expenses and taxes. Despite this decline, the margin remained above the initial 2018 level, reflecting relatively strong profit generation capacity.