McKesson Corp. (NYSE:MCK)

The analysis of the quarterly financial ratios reveals notable trends in the profitability and financial structure over the observed period.

Return on Assets (ROA)

The Return on Assets exhibited an overall fluctuating pattern between mid-2011 and late 2016. Initially, ROA increased from 3.84% in mid-2011 to a peak near 4.86% by late 2012. Following this peak, a decline trend occurred reaching a low around 2.34% by mid-2014. Subsequently, ROA showed signs of recovery, rising gradually to 3.99% by mid-2016 before slightly declining again towards the end of the period. This variability suggests intermittent changes in asset profitability possibly influenced by operational efficiency or asset utilization dynamics.

Financial Leverage

Financial Leverage remained relatively steady around the 4.4 to 4.9 range from mid-2011 through early 2013. A marked increase was observed starting in early 2014, surpassing 6.0 and peaking at approximately 6.73 in early 2015. Thereafter, leverage stabilized but stayed elevated above historical levels, fluctuating between about 6.1 and 6.3 towards late 2016. This increase indicates a rising use of debt or liabilities in financing assets, potentially amplifying risk but also impacting return measures.

Return on Equity (ROE)

Return on Equity displayed considerable volatility with a general upward trajectory from mid-2011 to late 2016. Starting at 17.2% in mid-2011, ROE peaked around 20.92% by late 2012, then dipped to the low teens by early to mid-2014. A significant recovery ensued, with ROE reaching a high of 25.3% by early 2016 before easing down to slightly above 20% by late 2016. The amplification in ROE corresponds with increased financial leverage, reflecting that equity holders benefitted from the leverage effect during these years.

Overall, the data indicates that while asset profitability experienced some instability, the company employed higher financial leverage starting in 2014, which appears to have contributed to enhanced equity returns. These patterns suggest a strategic shift toward greater leverage usage to boost shareholder returns, albeit with accompanying fluctuations in asset efficiency.

The financial performance over the observed periods demonstrates several notable trends across key indicators such as Net Profit Margin, Asset Turnover, Financial Leverage, and Return on Equity (ROE).

Net Profit Margin

The net profit margin exhibits moderate fluctuation throughout the periods. Initially, there is a gradual increase from around 1.04% to a peak near 1.3%, followed by a decline dipping below 1% in certain quarters. The margin recovers again towards the later periods, reaching approximately 1.18%, before tapering slightly to just under 1%. These variations indicate some volatility in profitability, with sporadic periods of margin compression.

Asset Turnover

Asset turnover reveals a generally declining trend in the early periods, moving from approximately 3.7 down to a low of around 2.66. This suggests a decreased efficiency in utilizing assets to generate sales during that phase. However, from around the mid-point onward, there is a gradual recovery evident, with ratios climbing back above 3.3, stabilizing near that level towards the end. This pattern reflects initial challenges in asset utilization followed by improvements in operational efficiency.

Financial Leverage

Financial leverage shows considerable fluctuation and an overall upward trajectory. The ratio moves from roughly 4.5 in the early periods, with some variation, to notably higher levels above 6.0 in the later quarters. This increase suggests a rising reliance on debt or other liabilities to finance assets, which could imply greater financial risk, although it may also reflect strategic capitalization decisions to boost returns.

Return on Equity (ROE)

Return on equity trends correspond with fluctuations in the components driving profitability and leverage. Beginning at around 17.2%, ROE increases to a peak exceeding 20% before declining during mid-periods to a low near 13.8%. In subsequent periods, ROE significantly improves, reaching a peak above 25% before settling to around 20%. This pattern indicates variable performance in generating shareholder returns, influenced by operational efficiency, profit margins, and leverage adjustments.

In summary, the data reflects a period of financial variability characterized by an initial weakening in asset efficiency and profitability margins, accompanied by increased leverage. Subsequently, the company appears to improve operational efficiency and profitability metrics, achieving higher returns on equity despite elevated financial leverage levels, indicating a balanced but risk-aware approach to financial management.

The analysis of the financial ratios over the observed periods reveals notable trends in profitability, efficiency, leverage, and overall equity returns.

Tax Burden

The tax burden ratio remained relatively stable, fluctuating around the 0.7 mark for most quarters. A slight decline to around 0.6 was noted near the end of 2013 and mid-2014, followed by a recovery to the range of 0.68–0.71 in the later periods. These fluctuations suggest moderate variability in effective tax rates impacting the company’s profitability after taxes.

Interest Burden

The interest burden held steady between 0.85 and 0.91 throughout the timeline, indicating consistent interest expense levels relative to operating income. A minor upward trend toward the end of the period, peaking at 0.9, may reflect slightly improved earnings before interest expenses or controlled debt servicing costs.

EBIT Margin

The earnings before interest and taxes margin showed mild variability, generally hovering between 1.5% and 1.9%. There was a slight decline in mid-2014, reaching the lower bound of that range, followed by an increase again toward the end of the examined timeframe. This pattern suggests some temporary pressures on operating profitability, with signs of recovery afterward.

Asset Turnover

The asset turnover ratio exhibited a downward trend starting from around 3.7 in early periods to a low of approximately 2.66 in early 2014, indicating reduced asset efficiency at that time. Subsequently, there was a steady improvement rising back above 3.3 by the end of the period, reflecting better utilization of assets in generating sales.

Financial Leverage

Financial leverage increased noticeably during the reported periods. Initially around 4.4–4.8, it escalated to above 6.0 starting in early 2014, peaking at approximately 6.73 in early 2015 before slightly tapering off. This rising leverage suggests an increased use of debt or other liabilities to finance the company’s assets over time, which may elevate financial risk.

Return on Equity (ROE)

ROE demonstrated significant fluctuations, initially around 16–17%, climbing above 20% by 2012, followed by a dip to the 13–14% range in 2013–2014. It then recovered strongly, reaching a peak of 25.3% in early 2016 before a slight decrease at the end. The overall pattern indicates volatility in equity profitability, influenced by changes in operating performance, leverage, and tax factors.

In summary, the company experienced periods of fluctuating profitability and efficiency, with a noticeable decrease in asset turnover around 2013–2014 offset by improved performance thereafter. The financial leverage increased considerably mid-period, which contributed to higher ROE volatility. Despite these fluctuations, the return on equity improved toward the latter part of the timeline, highlighting enhanced shareholder value creation during that phase.

The analysis of the quarterly financial metrics reveals several notable trends over the observed periods.

Net Profit Margin

The net profit margin exhibited moderate fluctuations, starting at 1.04% and reaching a peak of 1.3% in mid-2012. Following this peak, there was a gradual decline, hitting a low of 0.82% in mid-2014 and early 2015. Subsequently, the margin demonstrated a recovery trend, climbing back to approximately 1.18% in early 2016 before declining slightly to 0.99% by the end of the available data. Overall, the net profit margin showed periods of both strengthening and weakening but maintained a range close to 1% throughout most quarters.

Asset Turnover

Asset turnover began at a relatively high level around 3.7 and held steady through late 2012, although with a slight downward trend towards early 2013. A significant drop occurred at the beginning of 2014, with the ratio falling to around 2.66, indicating a reduced efficiency in using assets to generate sales during that period. Thereafter, a gradual recovery took place over the following quarters, with asset turnover improving steadily to a level near 3.3 by late 2016. This recovery suggests regained operational efficiency though still below the initial high points from 2011 to 2012.

Return on Assets (ROA)

Return on assets moved in a pattern roughly correlated with net profit margin and asset turnover trends. Initially, ROA rose from 3.84% to nearly 4.86% around late 2012, reflecting strong profitability and asset efficiency. A marked decrease followed, dropping to approximately 2.34% in mid-2014, indicating diminished returns during that period. Subsequently, ROA showed improvement, reaching close to 3.99% in early 2016, before a slight decline to 3.28% at the end of the data span. This suggests an overall recovery in asset profitability after a challenging phase.

In summary, the three key ratios indicate an initial phase of strong profitability and efficiency, followed by a period of weakened financial performance around 2013 to 2014. This was characterized by reduced net profit margins, lower asset turnover, and decreased returns on assets. However, the latter periods reveal a recovery trend, with improvements across all indicators, although not consistently reaching the initial peak levels. These dynamics suggest responsiveness to operational or market changes affecting profitability and asset utilization over the timeframe.

The financial ratios over the reviewed periods reveal several notable trends and fluctuations in operational efficiency, profitability, and burden ratios.

Tax Burden

The tax burden ratio exhibits a moderate downward trend from the initial value of approximately 0.71, reaching a low near 0.60 by late 2013, before fluctuating again between 0.62 and 0.71 in the subsequent years. This suggests some variability in the effective tax rate impacting net income, with slight improvements in tax efficiency evident in certain periods but without a consistent long-term reduction.

Interest Burden

The interest burden ratio remains relatively stable throughout the periods, ranging narrowly between 0.85 and 0.91. This stability indicates consistent interest expense management relative to earnings before interest and taxes, reflecting steady financial leverage and interest coverage conditions.

EBIT Margin

The EBIT margin percentage fluctuates within a narrow band mostly between 1.5% and 1.9%. A peak near 1.96% is observed around late 2012, followed by a slight decline and modest recovery trends. Overall, there is no clear directional trend, indicating consistent but modest operating profitability margins during the years.

Asset Turnover

Asset turnover initially maintains a fairly high level around 3.5 to 3.9 until early 2013, after which a notable decline occurs, dropping to approximately 2.66 by March 2014. A gradual recovery trend follows until reaching around 3.3 in later periods. This pattern suggests a temporary reduction in asset utilization efficiency, followed by improvements, likely reflecting changes in asset base and sales performance.

Return on Assets (ROA)

Return on assets experiences fluctuations aligned partially with changes in EBIT margin and asset turnover. It peaks near 4.86% in mid-2012, then declines to below 2.5% by early 2014, coinciding with lower asset turnover values. A subsequent recovery takes place, reaching nearly 4.0% by mid-2016. These variations illustrate the combined impact of operational profitability and asset utilization on overall asset returns.

In summary, the company demonstrated periods of improved profitability and asset utilization interspersed with phases of decline, particularly evident around 2013-2014. The stability in interest burden suggests consistent financial policies, while fluctuations in tax burden may reflect changing tax environments or strategic tax management actions. The interplay of EBIT margin and asset turnover appears critical in influencing overall asset returns.

The analysis of the quarterly financial ratios reveals several notable trends in profitability and expense management over the observed periods.

Tax Burden Ratio

This ratio generally fluctuates around the 0.7 mark throughout the periods, indicating a relatively stable proportion of pre-tax income retained after tax expenses. However, there are periods of decline, notably in late 2013 where the ratio dropped to 0.6, suggesting higher effective tax rates during that time. Following this dip, the ratio gradually recovers, exhibiting some variability but maintaining an average close to previous levels by mid-2016.

Interest Burden Ratio

The interest burden consistently remains high, mostly between 0.85 and 0.9, showing that financing costs have a modest impact on pre-interest earnings. There is a slight upward trend from 0.87 in mid-2011 to about 0.9 in early 2016, indicating a minor improvement in controlling interest expenses or maintaining lower debt-related costs relative to earnings.

EBIT Margin

The EBIT margin fluctuates moderately over the quarters, with peaks near 1.96% in late 2012 and lows around 1.49% in early 2015. Despite these oscillations, the margin does not demonstrate a clear upward or downward trend. The margins tend to recover after declines but fail to sustain higher levels consistently. There is a visible effect of volatility in operating profitability, reflecting potential variations in operating efficiency or cost structures over time.

Net Profit Margin

Net profit margin shows a broader range of movement between approximately 0.82% and 1.3%. The margin experienced a peak around mid to late 2012 at 1.3%, followed by periods of decline in 2013 and 2014, reaching lows below 0.9%. Thereafter, the margin gradually improves again, peaking near 1.18% in early 2016 before a slight drop. This variability suggests changes in overall profitability influenced by fluctuations in tax rates, interest expenses, or operational performance.

Overall, the financial ratios indicate relatively stable interest burden but variable tax burden that impacts net profitability. The EBIT and net profit margins show moderate volatility, reflecting underlying changes in operating conditions or cost management effectiveness. The gradual recovery in profit margins toward the end of the period suggests improving profitability after intermittent declines.