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
Kinder Morgan Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Return on Assets (ROA)
- The Return on Assets demonstrates a fluctuating but overall increasing trend over the five-year period. Starting at 0.3% in 2015, it rose to 0.88% in 2016, followed by a dip to 0.23% in 2017. Subsequently, it showed a significant increase in 2018 to 2.04% and further improved to 2.95% by the end of 2019. This indicates an enhancement in the company's efficiency in generating profits from its assets over time, especially notable in the last two years.
- Financial Leverage
- Financial leverage remains relatively stable throughout the period, hovering around a ratio slightly above 2.3 in the first four years, with values of 2.39 in 2015, 2.33 in 2016, 2.35 in 2017, and 2.34 in 2018. In 2019, there is a noticeable decline to 2.2, suggesting a modest reduction in the use of debt relative to equity. This may imply a slight shift towards a more conservative capital structure or debt repayment activities.
- Return on Equity (ROE)
- The Return on Equity exhibits a similar pattern to ROA, with overall growth and some volatility. It starts at a low of 0.72% in 2015, improves to 2.06% in 2016, dips to 0.54% in 2017, then experiences substantial gains in subsequent years—4.78% in 2018 and peaking at 6.49% in 2019. This trend indicates a considerable increase in the profitability generated from shareholders' equity, especially in the latter part of the period, reflecting improved returns for equity investors.
Three-Component Disaggregation of ROE
Kinder Morgan Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Net Profit Margin
- The net profit margin exhibited considerable volatility over the period. It started at 1.76% in 2015, experienced a notable increase to 5.42% in 2016, then declined sharply to 1.34% in 2017. Subsequently, there was a strong upward trend, reaching 11.38% in 2018 and further increasing to 16.58% in 2019. This indicates an overall improvement in profitability with substantial gains in the latter years.
- Asset Turnover
- Asset turnover remained relatively stable throughout the period, fluctuating slightly between 0.16 and 0.18. It started at 0.17 in 2015, dropped marginally to 0.16 in 2016, and then returned to 0.17 in 2017. A mild increase was observed in both 2018 and 2019, stabilizing at 0.18. This stability suggests consistent efficiency in asset utilization.
- Financial Leverage
- The financial leverage ratio showed a gradual decline over the five years, starting at 2.39 in 2015 and decreasing to 2.20 in 2019. This trend reflects a slight reduction in reliance on debt financing or a variation in the equity structure, implying an improvement in the company's capital structure robustness.
- Return on Equity (ROE)
- ROE demonstrated a fluctuating yet upward progression. It rose from a low of 0.72% in 2015 to 2.06% in 2016 before falling to 0.54% in 2017. The ratio then increased significantly to 4.78% in 2018 and continued to rise to 6.49% in 2019. This pattern signals improving effectiveness in generating returns for shareholders, particularly in the latter part of the period.
Five-Component Disaggregation of ROE
Kinder Morgan Inc., decomposition of ROE
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Tax Burden
- The tax burden ratio exhibited significant fluctuations over the period. It started at 0.31 in 2015, increased substantially to 0.44 in 2016, dropped sharply to 0.09 in 2017, followed by a steep rise to 0.73 in 2018 and a slight decrease to 0.70 in 2019. This variability indicates changes in effective tax rates or tax efficiency during these years.
- Interest Burden
- The interest burden ratio showed a general upward trend from 2015 to 2019. Beginning at 0.28 in 2015, it increased to 0.47 in 2016, further to 0.54 in 2017, remained relatively stable at 0.53 in 2018, and then rose to 0.63 in 2019. This trend suggests an improvement in operating income available after interest expenses, potentially due to reduced interest costs or increased earnings before interest and taxes.
- EBIT Margin
- The EBIT margin improved steadily across the examined years. Starting at 19.91% in 2015, it grew to 26.28% in 2016, then to 28.84% in 2017, followed by a slight increase to 29.08% in 2018, and finally a marked increase to 37.22% in 2019. This progression reflects enhanced operational efficiency or higher profitability on sales.
- Asset Turnover
- Asset turnover remained relatively stable during the period, fluctuating marginally between 0.16 and 0.18. It started at 0.17 in 2015, decreased slightly to 0.16 in 2016, then returned to 0.17 in 2017, rising to 0.18 in 2018 and maintaining that level in 2019. This stability suggests consistent effectiveness in using assets to generate sales.
- Financial Leverage
- Financial leverage ratios showed a mild downward trend, indicating a reduction in the use of debt or other liabilities relative to equity. The ratio was 2.39 in 2015, lowered to 2.33 in 2016, slightly increased to 2.35 in 2017, then decreased again to 2.34 in 2018 and further to 2.20 in 2019. This decrease may imply a more conservative capital structure over time.
- Return on Equity (ROE)
- Return on equity showed considerable variability but generally improved throughout the period. Beginning with a low 0.72% in 2015, it surged to 2.06% in 2016, fell to 0.54% in 2017, and then increased significantly to 4.78% in 2018 and 6.49% in 2019. The growth in ROE is likely influenced by the improvements in EBIT margin and interest burden, coupled with stable asset turnover and reduced financial leverage.
Two-Component Disaggregation of ROA
Kinder Morgan Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Net Profit Margin
- The net profit margin exhibited a generally increasing trend over the five-year period. Starting at 1.76% in 2015, it increased to 5.42% in 2016, experienced a dip to 1.34% in 2017, and then rose significantly to 11.38% in 2018, reaching 16.58% in 2019. This suggests an overall improvement in profitability efficiency, especially during the last two years.
- Asset Turnover
- The asset turnover ratio remained relatively stable throughout the period. It started at 0.17 in 2015, experienced a slight decrease to 0.16 in 2016, then returned to 0.17 in 2017, and maintained a gentle upward movement to 0.18 in both 2018 and 2019. This indicates consistent efficiency in utilizing assets to generate sales.
- Return on Assets (ROA)
- The return on assets showed an overall upward trajectory with some fluctuations. From a low 0.3% in 2015, it increased to 0.88% in 2016, declined to 0.23% in 2017, then saw significant growth to 2.04% in 2018 and 2.95% in 2019. This pattern reflects improving profitability relative to the company’s asset base, particularly in the last two years.
Four-Component Disaggregation of ROA
Kinder Morgan Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × | |||||
| Dec 31, 2017 | = | × | × | × | |||||
| Dec 31, 2016 | = | × | × | × | |||||
| Dec 31, 2015 | = | × | × | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Tax Burden
- The tax burden ratio exhibited significant fluctuations over the five-year period. It started at 0.31 in 2015, increased substantially to 0.44 in 2016, then dropped sharply to 0.09 in 2017. Subsequently, it rose markedly to 0.73 in 2018 and slightly declined to 0.70 in 2019. This variability indicates inconsistencies in the effective tax rate or changes in tax-related circumstances impacting net profitability.
- Interest Burden
- Interest burden displayed an overall increasing trend from 2015 to 2019. Beginning at 0.28 in 2015, it nearly doubled to 0.47 in 2016 and further increased to 0.54 in 2017. There was a minor decline to 0.53 in 2018, followed by an increase to 0.63 in 2019. The upward trend suggests a gradual improvement in controlling interest expenses relative to EBIT, though the dip in 2018 warrants attention.
- EBIT Margin
- The EBIT margin showed a consistent and strong upward trend throughout the period. It rose steadily from 19.91% in 2015 to 26.28% in 2016, then increased further to 28.84% in 2017, 29.08% in 2018, and reached a notable 37.22% in 2019. This progression highlights improving operational efficiency and profitability before interest and taxes.
- Asset Turnover
- Asset turnover remained relatively stable over the period, with marginal fluctuations. The ratio was 0.17 in 2015, slightly declined to 0.16 in 2016, returned to 0.17 in 2017, and increased modestly to 0.18 in 2018 and 2019. The limited variation suggests consistent efficiency in generating revenue from assets with no major operational shifts affecting asset utilization.
- Return on Assets (ROA)
- Return on assets showed variability but an overall positive trajectory. Initially low at 0.3% in 2015, it improved to 0.88% in 2016 before dropping to 0.23% in 2017. Subsequently, ROA increased significantly to 2.04% in 2018 and further to 2.95% in 2019. The upward movement in the later years reflects strengthening profitability relative to the asset base, driven likely by improved margins and controlled costs.
Disaggregation of Net Profit Margin
Kinder Morgan Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Tax Burden
- The tax burden ratio exhibits significant fluctuations throughout the observed period. It starts at 0.31 in 2015, increases to 0.44 in 2016, then sharply declines to 0.09 in 2017. Following this drop, it rises substantially in 2018 to 0.73 and remains relatively high at 0.7 in 2019. This pattern suggests variability in tax expenses relative to pre-tax earnings, with notably low tax impact in 2017 and higher tax effects in the later years.
- Interest Burden
- The interest burden ratio shows a general upward trend from 0.28 in 2015 to 0.63 in 2019. There is a steady increase in the ratio over the years, indicating an improving position related to interest expenses or earnings before interest and taxes (EBIT), with the company experiencing relatively lower interest expense impact on profitability by 2019 compared to 2015.
- EBIT Margin
- The EBIT margin percentage displays a consistent positive trend over the five-year period. It grows from 19.91% in 2015 to 37.22% in 2019, indicating improving operating efficiency and a greater proportion of revenue being converted into earnings before interest and taxes. This improvement suggests enhanced operational performance and control over costs or improved pricing power.
- Net Profit Margin
- The net profit margin experiences considerable variability but follows an overall upward trend. Starting from a modest 1.76% in 2015, it increases sharply to 5.42% in 2016, dips again to 1.34% in 2017, then rises significantly to 11.38% in 2018 and further to 16.58% in 2019. The fluctuations indicate periods of differing profitability, while the marked increase in the last two years reflects improved bottom-line results, possibly attributable to better operational performance, tax management, or lower financing costs.