Reynolds American Inc. (NYSE:RAI)

Return on Assets (ROA)

The Return on Assets demonstrates a generally positive trend with fluctuations over the periods analyzed. Starting from 7.68% in March 2013, ROA increased moderately, reaching a peak of 11.89% in December 2016. However, notable declines occurred around the early 2015 period, where ROA dipped to as low as 5.37%, followed by a recovery and a subsequent peak. The volatility indicates intermittent challenges in asset efficiency or profitability but overall suggests an improving capacity to generate earnings from assets over the longer term.

Financial Leverage

Financial leverage ratios fluctuated within a relatively narrow range. Beginning at 2.77 in March 2012, leverage increased to a peak of 3.51 by March 2015, indicating a higher reliance on debt financing during this period. Subsequently, a downward trend is observable, with leverage reducing to 2.39 by March 2017. This suggests a strategic move towards deleveraging or a reduction in debt relative to equity, possibly aiming to improve financial stability or reduce financial risk.

Return on Equity (ROE)

Return on Equity exhibited considerable variability. From a starting point of 24.2% in March 2013, ROE climbed consistently, reaching a high of over 33% between late 2013 and early 2015, signaling strong profitability relative to shareholder equity during this timeframe. In mid-2015, a sharp decline is evident, dropping to around 16%, followed by a recovery phase that led to another peak near 30% by late 2016. The decline aligns with the period of increased financial leverage, suggesting possible impacts of capital structure changes or profitability pressures. Despite fluctuations, ROE remained relatively high, reflecting effective utilization of equity capital overall.

Net Profit Margin

The net profit margin shows a general upward trend from March 2013 through late 2016, starting at 10.4% and rising to a peak of 40.35% in December 2015. There is notable volatility around this peak period, with margins fluctuating significantly from quarter to quarter. After December 2016, a sharp decline to 19.54% is evident by March 2017, indicating a substantial contraction in profitability relative to sales.

Asset Turnover

Asset turnover remains relatively stable in the range of 0.7 to 0.8 from March 2013 through December 2014, suggesting consistent efficiency in using assets to generate sales. However, starting in March 2015, there is a pronounced drop to around 0.23-0.33, maintaining this lower level through to March 2017. This decline implies that asset utilization efficiency deteriorated significantly from early 2015 onward.

Financial Leverage

Financial leverage ratios fluctuate between approximately 2.35 and 3.51 across the observed periods. Early years show moderate leverage near 2.7 to 3.3, with a peak around mid-2014 to early 2015 (3.36 to 3.51). Subsequently, a gradual reduction in leverage is seen through to 2016 and early 2017, declining to approximately 2.35-2.42, indicating a conservative shift in the company’s capital structure or deleveraging efforts.

Return on Equity (ROE)

Return on equity increases steadily from 24.2% in early 2013 to a high of approximately 33.25% by late 2013, sustaining this elevated level close to 32-33% into late 2014. From early 2015 to early 2016, ROE drops sharply to the 16-18% range, followed by a recovery to over 30% by December 2016. However, by March 2017, ROE decreases again to 15.15%. This pattern reflects fluctuating profitability and efficiency relative to shareholder equity, possibly influenced by operating performance and financial leverage changes.

Overall Insights

The data reveals a period of strong profitability and equity returns between 2013 and 2014, supported by stable asset turnover and moderate financial leverage. Starting in early 2015, the company experienced a marked decline in asset turnover and ROE, alongside a reduction in financial leverage, which may suggest operational challenges or strategic shifts affecting efficiency and returns. Despite some recovery in later 2016, volatility in net profit margin and ROE persists into early 2017, highlighting ongoing performance inconsistency.

Tax Burden

The tax burden ratio presents stability over the observed periods, consistently hovering around 0.63 to 0.64 from March 2013 through March 2017. Notably, there is a dip to approximately 0.50 to 0.56 range in late 2015 and early 2016, suggesting a temporary reduction in tax expenses relative to pre-tax income during this timeframe.

Interest Burden

The interest burden ratio remains fairly steady, generally around 0.89 to 0.94, indicating consistent management of interest expenses relative to EBIT. Minor fluctuations occur, with the ratio peaking near 0.95 in early 2016 before returning to about 0.9 by March 2017, suggesting stable interest expense control across periods.

EBIT Margin

The EBIT margin reveals a significant upward trend starting from approximately 18% in early 2012, increasing steadily to around 25% by year-end 2013. Thereafter, a marked increase is observed toward late 2015 and early 2016, peaking at an exceptionally high 76.16%, before dropping sharply to 34.15% by March 2017. These fluctuations indicate periods of extraordinary profitability performance followed by reversion toward more typical margin levels.

Asset Turnover

Asset turnover ratios fluctuate moderately around 0.7 to 0.8 until mid-2014, reflecting relatively consistent efficiency in utilizing assets to generate revenue. A sharp decrease is then apparent from late 2014 through early 2017, with values falling to approximately 0.23 to 0.33, suggesting a decline in asset utilization effectiveness during these later periods.

Financial Leverage

Financial leverage shows variation over time, initially ranging from about 2.6 to 3.3 between 2012 and 2014. A slight declining trend emerges post-2014, with the ratio decreasing to near 2.35 by early 2017. This pattern suggests gradual deleveraging, reflecting either a reduction in debt usage or an increase in equity financing over the observed timeframe.

Return on Equity (ROE)

ROE demonstrates a strong upward movement from around 24% in early 2013 to over 33% in late 2014, reflecting improved overall profitability relative to shareholders' equity. Subsequently, a pronounced decline occurs, with the ROE falling to approximately 15% by March 2017. This decline correlates with the observed decreases in asset turnover and the substantial variability in EBIT margin, indicating shifts in operational efficiency and profitability impact on equity returns.

Net Profit Margin

The net profit margin demonstrates an overall upward trend from March 2013 through December 2016, starting at 10.4% and peaking at 40.35% at the end of 2015. This indicates increasing profitability relative to sales during this period. However, after this peak, a noticeable decline occurs into early 2017, where the margin decreases to 19.54%. This suggests some volatility or changing conditions affecting profit efficiency in the most recent quarter.

Asset Turnover

The asset turnover ratio remains relatively stable from March 2013 to June 2015, fluctuating slightly between 0.72 and 0.8. This stability indicates consistent efficiency in using assets to generate revenue during this timeframe. From September 2015 onward, a marked decrease is evident, with ratios dropping substantially to a range around 0.23 to 0.33. This signifies a reduction in asset utilization efficiency beginning in late 2015 and continuing through early 2017.

Return on Assets (ROA)

ROA reflects a fluctuating but generally positive trend from March 2013 through December 2016. The return rises from approximately 7.68% in early 2013 to a peak of 11.89% at the end of 2016, indicating improving profitability relative to total assets. There is a notable dip in ROA in early 2015, with values dropping to about 5.37%, followed by a gradual recovery. In early 2017, ROA decreases substantially to 6.33%, aligning with the declines observed in net profit margin and asset turnover during the same period.

Overall Analysis

The combined analysis of net profit margin, asset turnover, and ROA reveals a period of improving profitability and operational efficiency from early 2013 to late 2015. The high net margin and solid ROA during this period suggest effective cost management and asset utilization. However, starting in late 2015 and continuing into 2017, a decline across all three metrics indicates emerging challenges, such as reduced operational efficiency and profitability pressures. This may reflect changes in market conditions, operational setbacks, or shifts in company strategy impacting financial performance.

Tax Burden

The tax burden ratio remains relatively stable between 0.63 and 0.64 from the first quarter of 2013 through the end of 2014. A noticeable decline occurs in 2015, with the ratio dropping to around 0.5-0.56, indicating a reduction in the effective tax rate during this period. Subsequently, the ratio increases gradually from 0.56 in late 2015 to approximately 0.64 by the first quarter of 2017, returning to prior levels.

Interest Burden

The interest burden ratio is consistently high, fluctuating narrowly between 0.88 and 0.95 throughout the observed periods. The trend suggests that the company maintained relatively steady interest expenses relative to its earnings before interest and taxes (EBIT), with minor variability and no clear long-term upward or downward trend.

EBIT Margin

The EBIT margin exhibits a generally increasing trend with some volatility. Starting at approximately 17.89% in early 2012, it increases gradually to around 25% by the end of 2013. A significant spike occurs in 2015, where the margin jumps dramatically to nearly 50%, followed by continued high values around 46-76% during 2015 and 2016. This peak suggests an exceptional increase in operating profitability during these quarters. However, by the first quarter of 2017, the EBIT margin declines sharply to around 34.15%, indicating a reduction in profitability from the peak levels.

Asset Turnover

Asset turnover shows relative stability between 0.72 and 0.8 from 2012 through 2014, indicating consistent efficiency in using assets to generate sales. Beginning in 2015, a noticeable decrease occurs, falling sharply to as low as 0.23-0.29, demonstrating a significant drop in asset utilization efficiency during this period. A mild recovery is observed through 2016, with values rising to about 0.33, but still below the earlier range, signaling partial improvement but continued challenges in asset productivity.

Return on Assets (ROA)

ROA follows a pattern roughly aligned with EBIT margin and asset turnover trends. It increases steadily from about 7.68% in early 2012 to near 11% by the end of 2013. A marked decline occurs in 2015, dropping to around 5.37-6.11%, coinciding with the pronounced decrease in asset turnover despite high EBIT margins. Thereafter, ROA improves substantially, peaking at nearly 12% by late 2016, before declining again to approximately 6.33% in early 2017. This variation indicates fluctuating effectiveness in generating profits from the assets employed over the analyzed period, influenced by changes in both profitability and asset efficiency.

The analysis of the financial ratios over the observed periods reveals several notable trends and fluctuations in the company's profitability and financial efficiency.

Tax Burden

The tax burden ratio remained relatively stable from March 2013 through March 2017, generally fluctuating between 0.62 and 0.64. However, there was a marked decrease in the first half of 2015, dipping to around 0.50–0.56, before rising again to previous levels by early 2017. This indicates that the effective tax rate experienced a temporary reduction during 2015, potentially due to tax planning strategies or changes in tax legislation.

Interest Burden

The interest burden ratio exhibited consistent stability throughout the entire examined period, with values predominantly between 0.88 and 0.95. Minor oscillations occurred but did not reflect significant changes in interest expenses relative to earnings before interest and taxes. This suggests that the company's interest obligations and financing costs were well-managed and stable over time.

EBIT Margin

The EBIT margin saw an overall upward trend with some volatility. Starting from approximately 17.89% in early 2012, it increased steadily, peaking significantly at 76.16% at the end of 2016. This surge, particularly between 2014 and 2016, reflects substantial improvements in operational profitability. Despite a decrease to 34.15% in the first quarter of 2017, the margin remained well above earlier levels, indicating generally enhanced operational efficiency over the years.

Net Profit Margin

The net profit margin mirrored the pattern of the EBIT margin but with less extreme variance. Beginning near 10.4% in early 2012, the margin climbed steadily to a peak of over 40% by late 2015 and 2016, demonstrating significant gains in overall profitability after expenses, interests, and taxes. The margin fell to 19.54% in March 2017 but maintained levels substantially higher than those at the start of the period under review. This pattern suggests improvements in net profitability, with some recent moderation.

In summary, the company shows strong operational and net profitability improvements through the middle to latter part of the period, with relatively stable interest and tax burdens, except for a temporary dip in the effective tax rate in 2015. The pronounced spikes in profitability ratios toward 2016 may indicate exceptional events or operational efficiencies which should be further investigated to ascertain sustainability.