National Oilwell Varco Inc. (NYSE:NOV)

The financial analysis reveals several notable trends over the examined periods. Return on Assets (ROA) demonstrates a declining pattern overall, beginning with relatively strong profitability around 8.34% in early 2012, gradually decreasing through 2013 and 2014, and then sharply dropping into negative territory by 2015 and continuing to decline through mid-2016. This indicates a weakening ability to generate profit from the company’s asset base over time.

Financial Leverage ratios exhibit a moderate increase from 1.43 in early 2012 to peaks around 1.7 during 2015, before slightly retreating to approximately 1.48 in mid-2016. This suggests the company incrementally increased its use of debt or other liabilities relative to equity until around 2015, then began to reduce leverage somewhat in subsequent periods.

Return on Equity (ROE) trends closely mirror those of ROA, with solid returns exceeding 11% in the initial years, plateauing around 10-12% through 2013 and 2014, but then deteriorating rapidly starting in 2015. ROE turned negative by early 2016 and declined further into negative double digits by mid-2016. This demonstrates that shareholders’ returns have been adversely affected, likely due to the decreased profitability and possibly increased financial risk during this timeframe.

Return on Assets (ROA)

Started strong above 8%, declined gradually to around 6.7%-7.5% during 2013-2014, then dropped sharply from 2015 onwards, reaching below -7% by mid-2016.

Financial Leverage

Increased moderately from about 1.43 to 1.7 by 2015, indicating higher debt usage, then slightly reduced back below 1.5 by mid-2016.

Return on Equity (ROE)

Remained stable near 12% early on, declined to around 10%-12% in the middle years, then sharply fell to negative values after 2015, reaching as low as -10.57% by mid-2016.

In summary, the company experienced a weakening financial performance and profitability starting in 2015, coinciding with elevated financial leverage levels. The negative returns on both assets and equity in recent periods indicate operational challenges and increased financial risks impacting shareholder value.

Net Profit Margin

The net profit margin demonstrates a clear downward trend over the observed periods. Beginning at 13.87% in March 2012, it gradually declines with minor fluctuations until it reaches a negative territory starting at -5.21% in December 2015, further deteriorating to -17.14% by June 2016. This consistent decrease highlights worsening profitability, with the most severe declines occurring from late 2015 through mid-2016.

Asset Turnover

Asset turnover ratios show moderate fluctuation but exhibit an overall declining trend from 0.6 in March 2012 to 0.42 in June 2016. The ratio peaked around mid-2013 and mid-2014 near 0.66 but subsequently decreased, reflecting a reduction in the efficiency of asset use to generate revenue across the later periods. The steady decline post-2014 indicates potential challenges in utilizing assets effectively.

Financial Leverage

Financial leverage ratios increased from 1.43 in March 2012 to a peak around 1.7 in March 2015, suggesting an increased use of debt relative to equity during this period. After this peak, leverage ratios mildly decreased to 1.48 by June 2016, indicating a slight reduction in financial leverage but remaining above the initial levels. Overall, the data suggests a more leveraged capital structure with a peak in leverage near early 2015.

Return on Equity (ROE)

Return on equity trends are closely aligned with net profit margin movements. ROE initially rose slightly, reaching peaks around 12.31% in mid to late 2012, before gradually declining. The decline becomes pronounced beginning in late 2014, turning negative by late 2015 (-4.69%) and deepening losses by mid-2016 (-10.57%). This reflects a deterioration in the company’s ability to generate returns for shareholders, mirroring the decline in profitability and asset efficiency.

Overall Analysis

The collective data points to a weakening financial performance throughout the period. Profitability as measured by net margin and ROE declined substantially, with both turning negative towards the end of the timeline. Efficiency in asset usage diminished as seen in the falling asset turnover. While financial leverage increased until early 2015, indicating higher reliance on debt, it slightly decreased afterwards but remained elevated compared to the start. These trends suggest increased financial risks combined with declining operational performance.

Tax Burden

The tax burden ratio remained relatively stable throughout the observed periods, fluctuating slightly between 0.68 and 0.71. This suggests consistent tax expense management relative to earnings before taxes over the years, without significant volatility.

Interest Burden

Interest burden ratios were consistently high, close to 0.99 in early periods and gradually declining to around 0.95 by mid-2016. This indicates a mild increase in interest expense relative to earnings before interest and taxes, implying slightly higher financial costs over time but no abrupt changes.

EBIT Margin

The EBIT margin showed a noticeable downward trend. Starting at around 20.51% in early 2012, it declined steadily to a negative margin of -19.65% by mid-2016. This significant deterioration reflects shrinking operating profitability, culminating in operating losses in the latest quarters, which is indicative of operational challenges or market conditions impacting earnings.

Asset Turnover

Asset turnover ratios exhibited moderate fluctuations, initially improving from 0.60 to 0.66 between 2012 and 2014, signaling increased efficiency in using assets to generate sales. However, from 2014 onwards, the ratio declined steadily to 0.42 by mid-2016, suggesting reduced asset utilization effectiveness in more recent periods.

Financial Leverage

Financial leverage ratios increased from about 1.43 in early 2012 to peak around 1.70 in early 2015, indicating a growing use of debt or other liabilities in the capital structure. Subsequently, leverage modestly decreased to approximately 1.48 by mid-2016, reflecting some deleveraging or adjustments in financing.

Return on Equity (ROE)

ROE followed a declining trajectory throughout the period. From a peak of around 12.31% in 2012, it gradually fell into negative territory by 2015 and continued to worsen to -10.57% by mid-2016. This decline is consistent with the drop in EBIT margins and asset turnover, combined with financial leverage trends, indicating diminished shareholder returns and potential operational and financial stress.

Net Profit Margin Trend

The Net Profit Margin exhibited a decreasing trend over the analyzed periods. Starting at 13.87% in the first quarter of 2012, it gradually declined to around 10.18% by the end of 2013. The margin then stabilized slightly above 11% through 2014 but experienced a noticeable decline in 2015, finishing the year at 7.6%. This downward trajectory continued sharply in 2016, with net profit margin turning negative, reaching -17.14% by mid-2016. This pattern suggests increasing challenges in maintaining profitability.

Asset Turnover Trend

The Asset Turnover ratio showed moderate fluctuations with an overall declining tendency. Initially, it ranged between 0.60 and 0.66 throughout 2012 to 2014, indicating relatively stable efficiency in utilizing assets to generate revenue. However, from late 2014 onward, the ratio gradually declined, dropping to 0.42 by the second quarter of 2016. This decrease points to a reduction in asset utilization efficiency over time.

Return on Assets (ROA) Trend

The Return on Assets followed a similar pattern to Net Profit Margin, starting at 8.34% in the first quarter of 2012 and remaining stable through 2013. It experienced a slight decline during 2014 and 2015, ending 2015 at 4.55%. From 2015 into 2016, ROA notably deteriorated, turning negative by early 2016 and reaching -7.16% mid-year. This deterioration signifies a loss in the company's ability to generate profit from its asset base.

Overall Insights

The financial ratios collectively indicate a period of stable profitability and operational efficiency until approximately 2014, followed by a progressive decline. The transition into negative net margins and ROA in 2016 highlights significant financial strain. The declining asset turnover ratio adds to the concern, implying reduced effectiveness in asset management. This combination of trends points to increasing difficulties in maintaining earnings and operational efficiency during the latter part of the observation period.

The analyzed financial data reveals several notable trends in National Oilwell Varco Inc.'s performance over the period from March 2012 to June 2016.

Tax Burden

The tax burden ratio remained relatively stable, fluctuating narrowly between 0.68 and 0.71 from March 2012 through December 2014. A minor dip to 0.69 occurred in March 2015, followed by a slight rebound to 0.71 by December 2015. Data is missing for 2016 quarters, thus recent trends cannot be ascertained.

Interest Burden

Interest burden showed a marginal but consistent decline over the period, starting at 0.99 in early 2012 and gradually decreasing to 0.95 by the fourth quarter of 2015. This indicates a slight increase in interest expense relative to earnings before interest and taxes, which may affect profitability. No data is available for 2016 quarters.

EBIT Margin

The EBIT margin depicted a clear downward trajectory, starting from a high of 20.51% in the first quarter of 2012. Margins steadily decreased each quarter, with some temporary stabilization in 2014. Beginning in 2015, the margin declined sharply, turning negative by the end of 2015 and continuing to deteriorate in the first two quarters of 2016, reaching -19.65% by June 2016. This trend suggests worsening operational efficiency and profitability challenges.

Asset Turnover

Asset turnover ratios showed moderate fluctuations within a narrow band between 0.60 and 0.66 through 2012 to early 2015, indicating relatively steady use of assets to generate revenue. However, starting in 2015, a downward trend became evident, declining to 0.55 by March 2016 and further to 0.42 by June 2016, signaling reduced efficiency in asset utilization during this period.

Return on Assets (ROA)

Return on Assets reflected the compounded effects of declining EBIT margins and deteriorating asset turnover. Initially stable around 8.3% in 2012, ROA gradually dropped to 6.06% by mid-2015 and then turned negative in 2016, falling to -7.16% by June. This indicates the company experienced losses on its asset base in early 2016, consistent with the sharp profit margin declines.

In summary, the company maintained stable tax and interest burden ratios with minor deterioration in interest burden. Profitability, as measured by EBIT margin and ROA, declined markedly beginning in 2015, with operational losses evident in 2016. Concurrently, asset turnover declined significantly, suggesting decreasing efficiency in asset utilization. These trends collectively point to increasing financial and operational challenges during the latter part of the analyzed period.

The financial data reveals several important trends related to the profitability and financial health over the observed periods. There is a gradual decline in key profitability ratios accompanied by a relatively stable burden ratios, which give insights into operational efficiency and financial structure.

Tax Burden Ratio

This ratio remains relatively stable through the periods, fluctuating marginally between 0.68 and 0.71 from early 2012 through early 2015. However, data is missing beyond mid-2015, making it difficult to fully assess the latest trend. The stability suggests consistent taxation impact on earnings.

Interest Burden Ratio

Interest burden remains high, starting near 0.99 and showing a moderate decline to about 0.95 by mid-2015. This suggests a slight increase in interest expense relative to earnings before interest and taxes over the period but maintaining a reasonably stable financial leverage level.

EBIT Margin

The EBIT margin shows a clear downward trend over the series. Starting at approximately 20.5% in early 2012, it falls gradually, crossing below 15% in late 2015, and turning negative by early 2016 (reaching -19.65% in Jun 2016). This sharp deterioration indicates significant challenges in operational profitability, possibly due to rising costs or declining revenues.

Net Profit Margin

The net profit margin follows a similar declining pattern. Beginning around 13.9% in early 2012, it steadily decreases over time to nearly 7.6% by late 2015, then deteriorates sharply into negative territory (-17.14% by Jun 2016). This reflects the combined effects of declining EBIT margins and consistent tax and interest burdens, leading to a substantial reduction in bottom-line profitability.

Overall, the data highlights a period of profitability erosion, with operating margins and net margins decreasing continuously over the span observed. The tax and interest burdens did not show significant volatility, suggesting that the decline in profitability is more related to operating challenges rather than changes in tax rates or financing costs. The sharp negative margins in early 2016 warrant further investigation into underlying causes during that period.