Hewlett Packard Enterprise Co. (NYSE:HPE)

The analysis of the annual financial data reveals significant fluctuations in key profitability and leverage metrics over the six-year period ending in 2023.

Return on Assets (ROA)

The ROA metric demonstrates variability, starting at 3.44% in 2018 and declining to a low of -0.6% in 2020, indicating a temporary period of negative asset profitability possibly linked to operational difficulties or asset inefficiencies. Subsequently, ROA improved markedly to 5.94% in 2021, before again decreasing to 1.52% in 2022. By 2023, it recovered to 3.54%, suggesting a moderate improvement in the efficiency of asset utilization to generate profits.

Financial Leverage

Financial leverage increased steadily from 2.61 in 2018 to a peak of 3.37 in 2020, reflecting a greater reliance on debt or liabilities relative to equity. After 2020, leverage decreased to 2.89 in 2021 and remained relatively stable at 2.88 in 2022, followed by a slight decline to 2.7 in 2023. This trend suggests a cautious deleveraging approach after 2020, possibly to reduce financial risk and improve balance sheet stability.

Return on Equity (ROE)

ROE shows a pattern parallel to ROA but with amplified magnitude, consistent with changes in financial leverage. Initially at 8.98% in 2018, ROE decreased to 6.14% in 2019 and dropped to a negative -2.01% in 2020, highlighting a challenging year with reduced shareholder returns. It then surged significantly to 17.16% in 2021, likely benefiting from both improved operational profitability and manageable leverage levels. Subsequently, ROE fell to 4.37% in 2022 before rising again to 9.56% in 2023. These fluctuations indicate variable shareholder profitability influenced by both operational performance and changes in financial structure.

Overall, the company experienced a period of strain around 2020, characterized by negative returns on assets and equity coupled with peak financial leverage. Post-2020, there was a recovery phase with improved profitability and a reduction in leverage, reflecting an adaptive financial strategy aimed at balancing growth and risk management. The volatility across these financial ratios underscores the sensitivity of the company’s returns to both operational efficiency and capital structure decisions over the observed period.

The financial data displays several notable trends over the six-year period analyzed. There is evident variability in profitability, asset management, and financial leverage, which collectively influence the return on equity.

Net Profit Margin

The net profit margin experienced fluctuations throughout the period. Starting at 6.18% in 2018, it dropped significantly to 3.6% in 2019 and then into negative territory at -1.19% in 2020. This negative margin indicates a loss during that year. There was a strong recovery in 2021 with a peak margin of 12.33%, followed by a decline again to 3.05% in 2022, before improving to 6.95% in 2023. Overall, the margin shows volatility, with marked recovery phases after downturns.

Asset Turnover

Asset turnover remains relatively stable but slightly declining over time. Starting at 0.56 in 2018 and 2019, the ratio dipped to 0.5 in 2020, followed by a mild decrease to 0.48 in 2021. It then slightly improved to 0.5 in 2022 and 0.51 in 2023. The generally low and declining asset turnover ratio suggests a moderate decrease in the efficiency with which assets are used to generate revenue, although recent years show a modest rebound.

Financial Leverage

Financial leverage shows an increasing trend from 2.61 in 2018 to a peak of 3.37 in 2020, implying a greater use of debt relative to equity during this period. However, from 2021 onward, leverage gradually decreases to 2.89 in 2021, then stabilizes near this level with slight downward movements reaching 2.7 in 2023. The reduction in leverage after 2020 may indicate a strategic de-risking or repayment of liabilities.

Return on Equity (ROE)

ROE mirrors the volatility seen in net profit margin, beginning at 8.98% in 2018 before falling to 6.14% in 2019 and turning negative at -2.01% in 2020, reflecting a loss year. It then notably surges to 17.16% in 2021, a peak within the six-year timeframe, before declining sharply to 4.37% in 2022. In 2023, ROE improves again to 9.56%. This pattern underscores significant earnings variability and fluctuating returns to shareholders during the period.

In summary, the financial indicators reveal a period marked by volatility, especially around 2020, characterized by losses and increased leverage. The subsequent years show recovery with better profitability and controlled leverage, although asset utilization efficiency remains modest. The fluctuations in return on equity primarily reflect changes in profit margins and financial leverage, indicating sensitivity to operational performance and capital structure decisions.

The financial data over the six-year period reveals several notable trends in the company's performance and financial structure.

Tax Burden

The tax burden ratio shows a sharp decline from 11.63 in 2018 to 0.68 in 2019, with subsequent values stabilizing close to 1. From 2021 onwards, the ratio remains consistently below 1, suggesting an effective tax rate well controlled relative to pre-tax earnings, with a slight improvement seen in 2023 at 0.91.

Interest Burden

This ratio improved significantly from 0.32 in 2018 to 0.83 in 2019, indicating lower interest expenses relative to operating income. It increased further to 0.93 in 2021 but declined to 0.77 in 2022 before recovering to 0.87 in 2023. Overall, interest burden remained below 1, reflecting manageable interest costs with some volatility in recent years.

EBIT Margin

The EBIT margin experienced considerable fluctuations. Starting low at 1.68% in 2018, it rose sharply to 6.4% in 2019, dropped to a negative -0.41% in 2020, and then surged dramatically to 13.95% in 2021. However, this peak was not sustained, with margins falling to 3.99% in 2022 before climbing back to 8.77% in 2023. These swings indicate a volatile operating profitability over the period.

Asset Turnover

Asset turnover ratio exhibited a gradual decline from 0.56 in 2018 and 2019 to a low of 0.48 in 2021, followed by a modest recovery to 0.51 in 2023. This suggests a slight decrease in the efficiency of asset usage to generate sales, although the ratio remained relatively stable overall.

Financial Leverage

Financial leverage increased steadily from 2.61 in 2018 to a peak of 3.37 in 2020, implying a greater reliance on debt or other liabilities in the capital structure. It then decreased to 2.7 by 2023, reflecting a reduction in leverage and potentially a more conservative financial posture in recent years.

Return on Equity (ROE)

ROE showed significant volatility corresponding to the fluctuation in profitability and leverage. It fell from 8.98% in 2018 to a low of -2.01% in 2020, reflecting a challenging year. A sharp recovery occurred in 2021 with ROE reaching 17.16%, followed by a decline in 2022 to 4.37%, and then an improvement to 9.56% in 2023. The pattern of ROE aligns with changes in EBIT margin and leverage, illustrating variable returns to shareholders over the period.

Net Profit Margin

The net profit margin exhibited notable fluctuations over the observed period. Initially, it was 6.18% in 2018, followed by a decline to 3.6% in 2019. A negative margin of -1.19% occurred in 2020, indicating a loss during that year. A significant recovery took place in 2021, with the margin reaching 12.33%. Subsequently, the margin decreased to 3.05% in 2022 but improved again to 6.95% in 2023. This pattern suggests oscillation in profitability, with a strong rebound post-2020 loss but some instability in maintaining higher margins.

Asset Turnover

Asset turnover remained relatively stable throughout the period, ranging narrowly between 0.48 and 0.56. It was 0.56 in both 2018 and 2019, then slightly declined to 0.5 by 2020 and further to 0.48 in 2021. A modest increase to 0.5 was observed in 2022, followed by a small rise to 0.51 in 2023. Overall, this indicates consistent efficiency in using assets to generate revenue, with only marginal changes year over year.

Return on Assets (ROA)

ROA mirrored the trend in net profit margin, reflecting overall profitability relative to assets. It started at 3.44% in 2018, declined to 2.02% in 2019, and turned negative at -0.6% in 2020, highlighting an unprofitable period. A sharp improvement occurred in 2021 with ROA rising to 5.94%, though it fell again to 1.52% in 2022. In 2023, ROA increased to 3.54%. The data indicates volatility in asset returns, strongly influenced by the fluctuations in net profit margin, while asset turnover remained steady.

Tax Burden

The tax burden ratio exhibits significant variability over the observed periods. It started very high at 11.63 in 2018, sharply declined to 0.68 in 2019, and then fluctuated slightly, maintaining a level close to 1 from 2021 through 2023. This indicates an initial period of unusually high tax impact which normalized in later years.

Interest Burden

The interest burden ratio showed a marked improvement from 0.32 in 2018 to 0.83 in 2019, followed by a further increase to 0.93 in 2021. It declined to 0.77 in 2022 but recovered somewhat to 0.87 in 2023. Overall, the trend suggests better management of interest expenses relative to earnings before interest and taxes, albeit with some fluctuations in recent years.

EBIT Margin

The EBIT margin saw considerable volatility. Beginning at a low 1.68% in 2018, it increased significantly to 6.4% in 2019 before dropping into negative territory at -0.41% in 2020. A strong recovery occurred in 2021, reaching 13.95%, but then the margin declined to 3.99% in 2022 and rose again to 8.77% in 2023. This pattern indicates periods of operational challenges, followed by recovery phases and moderate profitability.

Asset Turnover

Asset turnover remained relatively stable throughout the years, starting at 0.56 in 2018 and remaining close to this level, with a slight decline to 0.48 in 2021 and gradual increases back to 0.5 and 0.51 in 2022 and 2023, respectively. This consistency suggests steady efficiency in using assets to generate revenue.

Return on Assets (ROA)

The return on assets fluctuated in correlation with EBIT margin trends. It began at 3.44% in 2018, decreased to 2.02% in 2019, and then turned negative at -0.6% in 2020. ROA improved substantially to 5.94% in 2021, followed by a decline to 1.52% in 2022, before rising again to 3.54% in 2023. These movements reflect variable overall profitability relative to asset base, influenced by operational performance and financial burdens.

Tax Burden

The tax burden ratio displays significant fluctuation across the periods analyzed. It starts at an exceptionally high level in 2018 (11.63), then sharply declines to 0.68 in 2019. The value for 2020 is missing, but in subsequent years, it stabilizes somewhat, registering values close to 1, specifically 0.96 in 2021, 0.99 in 2022, and 0.91 in 2023. This suggests a normalization trend in the company's effective tax rate after the volatile initial years.

Interest Burden

The interest burden ratio shows a marked improvement from 2018 through 2021, rising from a low 0.32 in 2018 to a high of 0.93 in 2021, indicating a reduced interest expense relative to earnings before interest and taxes over this period. However, it declines somewhat in 2022 to 0.77 before increasing again to 0.87 in 2023. Overall, this portrays a general enhancement in the company's operating efficiency concerning interest costs with some minor recent variability.

EBIT Margin

The EBIT margin exhibits considerable fluctuations. Starting at a low of 1.68% in 2018, it improves substantially to 6.4% in 2019 before dropping into negative territory at -0.41% in 2020. A strong recovery follows in 2021 with a peak of 13.95%, after which it again declines sharply to 3.99% in 2022 but rebounds to 8.77% in 2023. This volatility reflects challenges and recoveries in operational profitability over these years, with a particularly strong performance in 2021.

Net Profit Margin

The net profit margin trend largely mirrors the EBIT margin but at lower levels, indicating the additional impact of taxes and interest expenses. It decreases from 6.18% in 2018 to 3.6% in 2019 and turns negative at -1.19% in 2020. The company then sees a marked improvement to 12.33% in 2021, followed by a decline to 3.05% in 2022 and a subsequent recovery to 6.95% in 2023. This pattern highlights sensitive profitability influenced by operational earnings and external costs, with a significant rebound in 2021 and partial recovery in 2023.