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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Two-Component Disaggregation of ROE
Hubbell Inc., 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 ROA exhibited some fluctuations over the five-year period. It started at 7.39% in 2018, increased to a peak of 8.18% in 2019, declined to 6.91% in 2020, followed by a recovery to 7.56% in 2021, and then substantially increased to reach 10.1% in 2022. This pattern indicates an improvement in asset utilization efficiency, especially notable in the latest year.
- Financial Leverage
- Financial leverage demonstrated a consistent declining trend from 2.74 in 2018 to 2.29 in 2022. This steady decrease suggests a reduction in reliance on debt financing relative to equity, indicating a potentially more conservative capital structure over time.
- Return on Equity (ROE)
- ROE followed a somewhat variable pattern. It was relatively stable around 20% in 2018 and 2019, then decreased significantly to 16.97% in 2020, before recovering gradually to 17.92% in 2021. In 2022, ROE increased markedly to 23.12%, surpassing previous years. This suggests an enhanced ability to generate profits from shareholders' equity, particularly in the most recent period.
Three-Component Disaggregation of ROE
Hubbell Inc., 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 exhibited a generally positive trend over the five-year period. Starting at 8.04% in 2018, it increased to 8.73% in 2019, experienced a slight decline to 8.39% in 2020, then rebounded to 9.53% in 2021, and reached its highest point at 11.03% in 2022. This indicates improving profitability and efficiency in managing expenses relative to revenue, especially noticeable in 2022.
- Asset Turnover
- The asset turnover ratio showed a fluctuating pattern. It began at 0.92 in 2018, slightly increased to 0.94 in 2019, then declined significantly to 0.82 in 2020 and further to 0.79 in 2021, before recovering back to 0.92 in 2022. This suggests that the company’s efficiency in using assets to generate revenue decreased during 2020 and 2021 but returned to previous efficient levels by 2022.
- Financial Leverage
- Financial leverage steadily decreased over the five years, from 2.74 in 2018 to 2.29 in 2022. This downward trend indicates a reduction in the company's reliance on debt relative to equity, reflecting a more conservative capital structure and potentially lower financial risk.
- Return on Equity (ROE)
- ROE saw a fluctuation with an overall positive return by the end of the period. It started at 20.23% in 2018, slightly increased to 20.59% in 2019, then declined to 16.97% in 2020, improved moderately to 17.92% in 2021, and surged to 23.12% in 2022. This pattern reflects variability in generating shareholder returns, with the 2022 figure indicating a strong improvement in profitability and effective use of equity capital.
Five-Component Disaggregation of ROE
Hubbell Inc., 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 showed stability from 2018 to 2020 at 0.78, indicating a consistent proportion of earnings retained after taxes during this period. There was a slight increase to 0.82 in 2021, followed by a minor decrease to 0.80 in 2022, suggesting marginal fluctuations in effective tax rates without significant impact.
- Interest Burden
- The interest burden ratio experienced a steady rise from 0.86 in 2018 to 0.93 by 2022, reflecting an improving ability to cover interest expenses from operating earnings. This improvement may indicate better management of interest costs or reduced debt expense pressures over time.
- EBIT Margin
- The EBIT margin displayed an overall positive trend, beginning at 11.9% in 2018 and generally increasing to 14.87% by 2022. There was a slight dip in 2020 to 12.16% but the margin recovered and reached its highest point in 2022, signaling enhanced operational efficiency and profitability.
- Asset Turnover
- Asset turnover showed a decline from 0.92 in 2018 and 0.94 in 2019 to lower levels of 0.82 in 2020 and 0.79 in 2021, indicating reduced effectiveness in generating sales from assets during this period. However, there was a notable recovery to 0.92 in 2022, suggesting a return to more efficient asset utilization.
- Financial Leverage
- Financial leverage steadily decreased from 2.74 in 2018 to 2.29 in 2022, illustrating a gradual reduction in reliance on debt financing. This downward trend may reflect a strategic move towards a more conservative capital structure or improved equity levels.
- Return on Equity (ROE)
- Return on equity fluctuated notably throughout the period. Starting at 20.23% in 2018, it peaked slightly at 20.59% in 2019, then declined to 16.97% in 2020. It showed a minor improvement to 17.92% in 2021 before rising significantly to 23.12% in 2022. These variations mirror the combined effects of changes in profit margins, asset efficiency, and financial leverage.
Two-Component Disaggregation of ROA
Hubbell Inc., 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 shows a generally upward trend over the five-year period. Starting at 8.04% in 2018, it increased to 8.73% in 2019, followed by a slight decline to 8.39% in 2020. Subsequently, there was a notable rise to 9.53% in 2021 and a further increase to 11.03% in 2022. This pattern suggests improving profitability, with a brief dip in 2020 possibly related to external or operational challenges.
- Asset Turnover
- The Asset Turnover ratio reveals a fluctuating trend. It started at 0.92 in 2018 and showed a slight improvement to 0.94 in 2019. A decline occurred in the two subsequent years, with ratios falling to 0.82 in 2020 and 0.79 in 2021. However, the ratio rebounded to 0.92 in 2022. Overall, this indicates a reduction in asset efficiency through 2020 and 2021, followed by a recovery to earlier levels by 2022.
- Return on Assets (ROA)
- The Return on Assets reflects mixed movements. It increased from 7.39% in 2018 to 8.18% in 2019, then declined sharply to 6.91% in 2020. After this low point, ROA improved to 7.56% in 2021 and surged significantly to 10.1% in 2022. This pattern is consistent with the trends seen in profitability and asset efficiency, indicating overall improved effectiveness in generating returns from assets in the most recent year.
Four-Component Disaggregation of ROA
Hubbell Inc., 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, starting at 0.78 in 2018 and maintaining this level through 2020. A slight increase was observed in 2021, reaching 0.82, followed by a minor decline to 0.80 in 2022. This indicates limited variability in the effective tax rate over the years, suggesting consistent tax management.
- Interest Burden
- The interest burden ratio exhibited a steady upward trend from 0.86 in 2018 to 0.93 in 2022. This gradual increase indicates an improvement in the company's ability to cover interest expenses through its operations, potentially reflecting reduced interest expense or enhanced operating income.
- EBIT Margin
- The EBIT margin showed a general increase throughout the period. Starting at 11.9% in 2018, it rose to 12.71% in 2019, slightly dipped to 12.16% in 2020, then advanced to 12.93% in 2021, and experienced a notable increase to 14.87% by 2022. The substantial growth in EBIT margin in the final year suggests enhanced operational profitability and cost control.
- Asset Turnover
- Asset turnover demonstrated some fluctuation across the years. It began at 0.92 in 2018, marginally increased to 0.94 in 2019, but declined to 0.82 in 2020 and further to 0.79 in 2021. A recovery occurred in 2022 with a return to 0.92. This pattern might reflect operational efficiency challenges during 2020-2021, potentially due to market or internal factors, with improvement noted in the latest period.
- Return on Assets (ROA)
- ROA followed a variable trajectory, rising from 7.39% in 2018 to a peak of 8.18% in 2019, then declining to 6.91% in 2020. Subsequently, it improved to 7.56% in 2021 and surged to 10.1% in 2022. The significant increase in ROA in the final year implies enhanced efficiency in generating profits from assets, in line with increases in EBIT margin and asset turnover recovery.
Disaggregation of Net Profit Margin
Hubbell Inc., 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 from 2018 through 2022, fluctuating slightly within a narrow range. It started at 0.78 in 2018 and maintained this level until 2020, then showed a modest increase to 0.82 in 2021 before slightly declining to 0.80 in 2022. This indicates consistent tax expense relative to pre-tax income over the period, with only minor variations.
- Interest Burden
- A gradual upward trend is observed in the interest burden ratio during the period. Beginning at 0.86 in 2018, it increased steadily each year, reaching 0.93 in 2022. This suggests a decreasing interest expense relative to operating income, which may reflect improved management of financial costs or reduced interest obligations over time.
- EBIT Margin
- The EBIT margin demonstrated an overall increasing trend from 2018 to 2022. Starting at 11.9% in 2018, it rose to 12.71% in 2019, experienced a slight dip to 12.16% in 2020, then increased again to 12.93% in 2021 and notably to 14.87% in 2022. This progression indicates progressively higher operating profitability, with a marked improvement in the latest year.
- Net Profit Margin
- The net profit margin showed consistent growth throughout the five-year period. It started at 8.04% in 2018, increased steadily reaching 8.73% in 2019, slightly decreased to 8.39% in 2020, then improved to 9.53% in 2021 and further to 11.03% in 2022. This reflects enhanced overall profitability after all expenses, with the most significant gains occurring in the final two years.