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.
Two-Component Disaggregation of ROE
Hess Corp., 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).
- Return on Assets (ROA)
- The ROA demonstrates a significant decline from -1.32% in 2018 to -16.43% in 2020, indicating worsening asset profitability during this period. However, there is a notable recovery beginning in 2021, with the ROA turning positive at 2.72% and further improving to 9.66% in 2022. This suggests an enhancement in the company's efficiency in generating returns from its assets in recent years.
- Financial Leverage
- Financial leverage increased steadily from 2.23 in 2018 to a peak of 3.51 in 2020, implying a higher reliance on borrowed funds during this time. Subsequently, leverage decreased to 3.26 in 2021 and further to 2.76 in 2022, indicating a reduction in debt dependency and potentially an improved capital structure or deleveraging strategy post-2020.
- Return on Equity (ROE)
- ROE trends mirror those of ROA but with greater volatility. The company experienced a decline from -2.93% in 2018 to a dramatically low -57.64% in 2020, reflecting severe negative shareholder returns potentially linked to losses or write-downs. The turnaround is pronounced in 2021 and 2022, with ROE improving substantially to 8.87% and then to 26.68%, indicating a strong recovery in profitability for equity holders in the later periods.
Three-Component Disaggregation of ROE
Hess Corp., 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).
- Net Profit Margin
- The net profit margin exhibited a declining trend from 2018 to 2020, decreasing significantly from -4.46% to -66.27%. However, this negative trend reversed in the subsequent years, with the margin improving to 7.48% in 2021 and further rising to 18.51% in 2022, indicating a shift from losses to profitability.
- Asset Turnover
- The asset turnover ratio remained relatively stable between 2018 and 2019 at 0.3, then declined to 0.25 in 2020. Starting in 2021, the ratio increased markedly, reaching 0.36 and then 0.52 by 2022, suggesting enhanced efficiency in using assets to generate revenue in the latter periods.
- Financial Leverage
- Financial leverage increased steadily from 2.23 in 2018 to a peak of 3.51 in 2020, reflecting greater use of debt or other liabilities relative to equity. Following 2020, financial leverage decreased to 3.26 in 2021 and further to 2.76 in 2022, indicating a reduction in reliance on debt financing.
- Return on Equity (ROE)
- ROE followed a pattern similar to net profit margin, with negative returns from 2018 (-2.93%) worsening sharply to -57.64% in 2020. Improvement commenced in 2021 with an 8.87% return, progressing significantly to 26.68% in 2022. This demonstrates a substantial turnaround in profitability in relation to shareholders' equity.
Five-Component Disaggregation of ROE
Hess Corp., 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 displayed significant variability, starting at -5.32 in 2018 and deteriorating further to -7.7 in 2019. Data for 2020 is missing, but the ratio improved markedly in 2021 to 0.48 and increased slightly to 0.66 in 2022, indicating a shift from negative values towards positive tax effectiveness.
- Interest Burden
- The interest burden remained consistently low at 0.12 in both 2018 and 2019, with no data for 2020. However, it improved substantially in subsequent years, rising to 0.71 in 2021 and further to 0.87 in 2022, suggesting a reduced interest expense relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin showed a generally positive trend despite a sharp decline in 2020. It started at 7.15% in 2018, decreased slightly to 6.67% in 2019, then plunged to -56.48% in 2020, indicating a challenging operational year. Subsequently, the margin rebounded strongly to 21.95% in 2021 and further expanded to 32.57% in 2022, reflecting significant improvement in operating profitability.
- Asset Turnover
- Asset turnover remained stable at 0.3 in both 2018 and 2019 before a slight decline to 0.25 in 2020. Recovery began in 2021 with an increase to 0.36, followed by continued growth to 0.52 in 2022, indicating enhanced efficiency in generating revenues from assets over the recent period.
- Financial Leverage
- Financial leverage increased from 2.23 in 2018 to a peak of 3.51 in 2020, indicating greater reliance on debt financing. It then decreased to 3.26 in 2021 and further declined to 2.76 in 2022, suggesting a reduction in leverage and a potentially more conservative capital structure in recent years.
- Return on Equity (ROE)
- ROE experienced a steep decline from -2.93% in 2018 to -4.67% in 2019, plunging further to -57.64% in 2020, underscoring a difficult year with substantial losses. In 2021, ROE improved notably to 8.87%, followed by a strong increase to 26.68% in 2022, demonstrating a significant recovery in value generation for shareholders.
Two-Component Disaggregation of ROA
Hess Corp., decomposition of ROA
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 exhibited significant volatility during the analyzed period. Initially, the margin was negative at -4.46% in 2018 and further deteriorated to -6.28% in 2019. A sharp decline occurred in 2020, reaching -66.27%, indicating substantial losses. However, a strong recovery was observed thereafter, with the margin turning positive in 2021 at 7.48%, followed by further improvement to 18.51% in 2022. This trend reflects a transition from substantial losses to profitability within the last two years.
- Asset Turnover
- The asset turnover ratio remained relatively stable around 0.3 in 2018 and 2019, but decreased to 0.25 in 2020, signaling reduced efficiency in using assets to generate revenue during that period. From 2020 onwards, the ratio improved steadily, rising to 0.36 in 2021 and reaching 0.52 in 2022. This upward trajectory indicates enhanced operational efficiency and better utilization of assets towards the end of the period.
- Return on Assets (ROA)
- Return on assets followed a pattern similar to net profit margin. It was negative in the early years, at -1.32% in 2018 and -1.87% in 2019, and showed a significant decline to -16.43% in 2020, reflecting poor asset profitability. Subsequently, ROA turned positive in 2021, rising to 2.72%, and demonstrated a robust increase in 2022 to 9.66%. This improvement aligns with the increase in net profit margin and asset turnover, suggesting better overall asset performance in recent years.
Four-Component Disaggregation of ROA
Hess Corp., decomposition of ROA
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 exhibited negative values in 2018 and 2019, indicating a tax benefit or possibly tax refunds during those years. Data for 2020 is missing. In 2021 and 2022, the ratio turned positive, showing an improving tax expense position with values of 0.48 and 0.66 respectively, indicating a normalization in tax payments relative to pre-tax income.
- Interest Burden
- The interest burden ratio remained consistent at 0.12 for both 2018 and 2019, suggesting stable interest expenses relative to earnings before interest and taxes (EBIT). The value for 2020 is not provided. In 2021, the ratio increased to 0.71 and further to 0.87 in 2022, implying a reduced interest expense burden or improved EBIT coverage of interest costs over these years.
- EBIT Margin
- The EBIT margin was moderately positive in 2018 and 2019 at 7.15% and 6.67%, respectively. There was a significant deterioration in 2020 with a steep negative margin of -56.48%, reflecting severe operational challenges or extraordinary losses. Subsequently, the margin recovered strongly, reaching 21.95% in 2021 and further improving to 32.57% in 2022, demonstrating a robust rebound in operating profitability.
- Asset Turnover
- Asset turnover remained stable at 0.30 in 2018 and 2019, with a decline to 0.25 in 2020 coinciding with the operational difficulties noted. This metric improved considerably to 0.36 in 2021 and further to 0.52 in 2022, suggesting enhanced efficiency in asset utilization and revenue generation during the recovery period.
- Return on Assets (ROA)
- ROA was negative in 2018 (-1.32%) and worsened slightly in 2019 (-1.87%). A significant decline occurred in 2020 with a steep negative ROA of -16.43%, aligning with the adverse events impacting profitability and asset efficiency. The ratio returned to positive territory in 2021 at 2.72% and improved markedly to 9.66% in 2022, signaling a pronounced recovery in overall asset profitability.
Disaggregation of Net Profit Margin
Hess Corp., decomposition of net profit margin ratio
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 Ratio
- The tax burden ratio exhibited negative values in 2018 and 2019, decreasing from -5.32 to -7.7, indicating an unusual tax effect or tax benefits during those years. Data for 2020 is missing, but the ratio shifted positively in 2021 and 2022 to 0.48 and 0.66 respectively, suggesting an improvement in tax expense relative to pre-tax income.
- Interest Burden Ratio
- The interest burden ratio remained stable at 0.12 in 2018 and 2019, indicating limited interest expense relative to operating income during that period. No data is available for 2020, but a noticeable increase occurred in 2021 (0.71) and 2022 (0.87), reflecting higher interest expenses decreasing the burden less significantly on earnings before taxes.
- EBIT Margin
- The EBIT margin showed a declining trend from 7.15% in 2018 to 6.67% in 2019, followed by a sharp drop to -56.48% in 2020, signaling a substantial loss at the operating level. This was followed by a strong recovery in 2021 and 2022, with EBIT margins rising to 21.95% and 32.57% respectively, indicating improved operational profitability.
- Net Profit Margin
- Net profit margin followed a pattern similar to EBIT margin but with more pronounced variations. Negative margins were reported in 2018 (-4.46%) and 2019 (-6.28%), worsening dramatically to -66.27% in 2020. Recovery was evident in 2021 (7.48%) and 2022 (18.51%), reflecting a return to profitability and enhanced bottom-line performance.