DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Quarterly Data
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
Two-Component Disaggregation of ROE
RH, decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2023-04-29), 10-K (reporting date: 2023-01-28), 10-Q (reporting date: 2022-10-29), 10-Q (reporting date: 2022-07-30), 10-Q (reporting date: 2022-04-30), 10-K (reporting date: 2022-01-29), 10-Q (reporting date: 2021-10-30), 10-Q (reporting date: 2021-07-31), 10-Q (reporting date: 2021-05-01), 10-K (reporting date: 2021-01-30), 10-Q (reporting date: 2020-10-31), 10-Q (reporting date: 2020-08-01), 10-Q (reporting date: 2020-05-02), 10-K (reporting date: 2020-02-01), 10-Q (reporting date: 2019-11-02), 10-Q (reporting date: 2019-08-03), 10-Q (reporting date: 2019-05-04), 10-K (reporting date: 2019-02-02), 10-Q (reporting date: 2018-11-03), 10-Q (reporting date: 2018-08-04), 10-Q (reporting date: 2018-05-05).
- Return on Assets (ROA)
- The ROA exhibited a generally upward trend from early 2018 through mid-2021, rising from 1.92% to a peak of approximately 15.4%. This indicates increasing efficiency in asset utilization over this period. Following the peak, a decline is evident, with the rate decreasing to around 6.95% by April 2023, suggesting a reduction in the company's ability to generate profits from its assets in recent quarters.
- Financial Leverage
- Financial leverage showed significant volatility in the initial quarters of the data series, starting at an extremely high level of 202.38 ratio in May 2018 before dropping sharply and experiencing sporadic missing data. From late 2019 onward, leverage stabilized at lower levels, fluctuating moderately between approximately 4.14 and 6.77 ratio. The downward adjustment and stabilization imply a concerted effort to reduce reliance on debt or other leveraged capital during this timeframe.
- Return on Equity (ROE)
- ROE followed a highly volatile pattern with exceptionally high values early on, including extreme peaks such as 1181.57% in early 2020 and 948.36% a quarter later. These outliers suggest that the company experienced periods of exceptional shareholder returns, likely driven by factors such as high financial leverage or non-recurring events. However, from late 2020 onward, ROE declined significantly and stabilized within a lower range, mostly between 40% and 70%, reflecting a normalization of shareholder returns. The decline and stabilization may correlate with the company's reduced financial leverage and adjustments in operational performance.
- Overall Insights
- The data reveals a trajectory of strong operational efficiency and high shareholder returns in the earlier years, accompanied by elevated financial leverage. Over time, the company appears to have pursued deleveraging, which corresponds with more moderate but steadier returns on equity and assets. The recent decline in ROA alongside stable yet moderate leverage levels suggests challenges in maintaining asset profitability, although the company has mitigated financial risk compared to earlier periods.
Three-Component Disaggregation of ROE
RH, decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2023-04-29), 10-K (reporting date: 2023-01-28), 10-Q (reporting date: 2022-10-29), 10-Q (reporting date: 2022-07-30), 10-Q (reporting date: 2022-04-30), 10-K (reporting date: 2022-01-29), 10-Q (reporting date: 2021-10-30), 10-Q (reporting date: 2021-07-31), 10-Q (reporting date: 2021-05-01), 10-K (reporting date: 2021-01-30), 10-Q (reporting date: 2020-10-31), 10-Q (reporting date: 2020-08-01), 10-Q (reporting date: 2020-05-02), 10-K (reporting date: 2020-02-01), 10-Q (reporting date: 2019-11-02), 10-Q (reporting date: 2019-08-03), 10-Q (reporting date: 2019-05-04), 10-K (reporting date: 2019-02-02), 10-Q (reporting date: 2018-11-03), 10-Q (reporting date: 2018-08-04), 10-Q (reporting date: 2018-05-05).
- Net Profit Margin
- The net profit margin exhibits an overall upward trend from 1.38% in May 2018 to a peak of 19.68% in April 2022. After reaching this peak, the margin gradually declines to 10.97% by April 2023. This indicates improved profitability over the initial periods, with a significant increase between 2020 and 2022, followed by a reduction in profit margins in the most recent periods.
- Asset Turnover
- The asset turnover ratio shows a relatively stable pattern initially, hovering around 1.36 to 1.39 until early 2019. From mid-2019 onwards, there is a noticeable downward shift, declining steadily to a low of approximately 0.63 by April 2023. This decline suggests reduced efficiency in generating sales from assets over time, particularly evident from late 2020 to 2023.
- Financial Leverage
- Financial leverage demonstrates significant fluctuations in the earliest periods, with extremely high and erratic values such as 202.38 and 131.13. From early 2020 onwards, leverage stabilizes to more moderate and consistent levels ranging between approximately 4 and 7. This implies a transition from highly volatile leverage to a more controlled and stable capital structure in recent years.
- Return on Equity (ROE)
- ROE exhibits extreme variability in the initial periods, with very high percentages such as 388.9% and 1181.57%, reflecting possible volatility or one-off events affecting equity returns. From 2020 onward, the ratio moderates and stabilizes within a range roughly between 44% and 70%, showing consistent but lower returns on equity. Despite some fluctuations, there is a clear reduction in the magnitude of ROE compared to earlier periods, indicating a normalization process in the company’s equity profitability.
Two-Component Disaggregation of ROA
RH, decomposition of ROA (quarterly data)
Based on: 10-Q (reporting date: 2023-04-29), 10-K (reporting date: 2023-01-28), 10-Q (reporting date: 2022-10-29), 10-Q (reporting date: 2022-07-30), 10-Q (reporting date: 2022-04-30), 10-K (reporting date: 2022-01-29), 10-Q (reporting date: 2021-10-30), 10-Q (reporting date: 2021-07-31), 10-Q (reporting date: 2021-05-01), 10-K (reporting date: 2021-01-30), 10-Q (reporting date: 2020-10-31), 10-Q (reporting date: 2020-08-01), 10-Q (reporting date: 2020-05-02), 10-K (reporting date: 2020-02-01), 10-Q (reporting date: 2019-11-02), 10-Q (reporting date: 2019-08-03), 10-Q (reporting date: 2019-05-04), 10-K (reporting date: 2019-02-02), 10-Q (reporting date: 2018-11-03), 10-Q (reporting date: 2018-08-04), 10-Q (reporting date: 2018-05-05).
- Net Profit Margin
- The net profit margin shows a general upward trend from May 2018 to January 2022. It began at 1.38% in May 2018 and increased steadily, reaching a peak of 19.68% in April 2022. Following this peak, there is a noticeable decline in the margin, with values decreasing to 10.97% by April 2023. This pattern indicates a period of improving profitability over several years, followed by a recent downturn.
- Asset Turnover
- The asset turnover ratio remains relatively stable with minor fluctuations throughout the observed periods. It starts at 1.39 in May 2018 and gradually decreases to around 1.0 by early 2021. A significant drop occurs after October 2021, where the ratio declines sharply from around 1.01 to values near 0.63 by April 2023. This suggests a reduction in the efficiency of asset utilization over time, especially in the last two years.
- Return on Assets (ROA)
- The ROA exhibits a growth trend from May 2018 through July 2021, increasing from 1.92% to 15.4%. However, a noticeable decline follows, with ROA values decreasing to 6.95% by April 2023. This decline mirrors the trends observed in net profit margin and asset turnover, indicating that the company's profitability and asset efficiency have both weakened in recent periods.
- Summary of Trends
- Overall, the financial indicators portray a period of strong growth in profitability and efficient use of assets from 2018 through early 2022, characterized by rising net profit margin and ROA. The asset turnover ratio remained relatively stable during this growth phase but dropped significantly afterward. From early 2022 onward, all three key metrics show a declining pattern, signaling reduced profitability and effectiveness in utilizing assets during the most recent periods. This may reflect operational challenges or external factors impacting financial performance.