SLB N.V. (NYSE:SLB)

The period under review demonstrates a dynamic relationship between profitability, asset utilization, and financial leverage. Return on Equity (ROE) exhibited a substantial increase from 2021 to 2024, followed by a significant decline in 2025. This fluctuation is directly attributable to concurrent movements in Return on Assets (ROA) and Financial Leverage.

Return on Assets (ROA)

ROA increased steadily from 4.53% in 2021 to a peak of 9.12% in 2024, indicating improved efficiency in generating profits from its assets. However, a notable decrease to 6.15% occurred in 2025, suggesting a reduction in asset utilization or profitability during that year. The overall trend suggests a strong performance period between 2021 and 2024, followed by a reversal.

Financial Leverage

Financial Leverage decreased consistently from 2.77 in 2021 to 2.10 in 2025. This indicates a reduction in the company’s reliance on debt financing. While a lower leverage ratio generally reduces financial risk, it also diminishes the potential for amplifying returns during profitable periods. The consistent decline suggests a deliberate strategy to de-lever the balance sheet.

Return on Equity (ROE) – Two-Component Disaggregation

The initial increase in ROE from 12.54% in 2021 to 21.11% in 2024 was driven by the combined effect of rising ROA and decreasing, but still substantial, financial leverage. The increase in ROA contributed significantly to the higher ROE. However, the decline in ROA in 2025, coupled with the continued reduction in financial leverage, resulted in a substantial decrease in ROE to 12.92%. This demonstrates that while reducing leverage is a prudent financial strategy, it can exacerbate the impact of declining asset profitability on shareholder returns.

The interplay between ROA and Financial Leverage highlights the importance of maintaining a balance between profitability, asset efficiency, and capital structure. The 2025 results suggest that a decline in operational performance can significantly impact ROE, even with a conservative leverage position.

The period under review demonstrates significant fluctuations in profitability, efficiency, and financial leverage, ultimately impacting overall return on equity. Initial improvements in these areas were followed by a moderation of performance towards the end of the analyzed timeframe.

Net Profit Margin

The net profit margin exhibited a substantial increase from 8.20% in 2021 to 12.25% in 2022, and further to 12.68% in 2023. This indicates improving profitability. However, the margin experienced a slight decrease to 12.29% in 2024 before a more pronounced decline to 9.45% in 2025. This suggests potential pressures on profitability in the latter years.

Asset Turnover

Asset turnover showed a consistent upward trend from 0.55 in 2021 to 0.74 in 2024, indicating increasing efficiency in utilizing assets to generate revenue. However, this trend reversed in 2025, with the ratio decreasing to 0.65. This suggests a potential slowdown in the efficiency of asset utilization.

Financial Leverage

Financial leverage decreased steadily from 2.77 in 2021 to 2.10 in 2025. This indicates a reduction in the company’s reliance on debt financing. While a lower leverage ratio generally reduces financial risk, it can also limit the potential for amplified returns during profitable periods.

Return on Equity (ROE)

Return on equity mirrored the trends observed in the component ratios. ROE increased significantly from 12.54% in 2021 to 20.82% in 2023, peaking at 21.11% in 2024. This improvement was driven by gains in both profitability and asset turnover, alongside a moderate decrease in financial leverage. However, ROE declined substantially to 12.92% in 2025, coinciding with the decreases in net profit margin and asset turnover.

The interplay between these ratios demonstrates that the initial gains in ROE were largely attributable to improvements in operational efficiency and profitability. The subsequent decline in ROE in 2025 highlights the sensitivity of overall returns to changes in these underlying factors. The reduction in financial leverage, while prudent from a risk management perspective, may have also contributed to the lower ROE in the final year, as it limited the potential for positive leverage effects.

The five-component DuPont analysis reveals notable shifts in performance metrics between 2021 and 2025. Return on Equity (ROE) experienced a substantial increase initially, followed by a decline in the most recent year. This fluctuation is attributable to changes in the underlying components of profitability, efficiency, and financial leverage.

Profitability

The EBIT Margin demonstrated a clear upward trajectory from 2021 to 2023, increasing from 12.50% to 17.24%. This indicates improving operational efficiency and pricing power. However, the EBIT Margin then decreased to 16.72% in 2024 and further to 13.36% in 2025, suggesting a potential erosion of profitability in the latter period. The Tax Burden remained relatively stable throughout the analyzed period, fluctuating between 0.80 and 0.82.

Efficiency

Asset Turnover exhibited consistent growth from 0.55 in 2021 to 0.74 in 2024, signifying improved asset utilization and sales generation. However, a decrease to 0.65 was observed in 2025, potentially indicating a slowdown in sales relative to asset base.

Financial Leverage

Financial Leverage decreased steadily from 2.77 in 2021 to 2.10 in 2025. This suggests a reduction in the company’s reliance on debt financing. While initially contributing to ROE growth, the declining leverage ultimately contributed to the ROE decrease in 2025.

Interest Burden

The Interest Burden increased from 0.81 in 2021 to 0.91 in 2023, before decreasing to 0.88 in 2025. This suggests a changing cost of financing, potentially linked to interest rate fluctuations or changes in the debt portfolio. The initial increase, coupled with rising leverage, likely contributed to the ROE expansion in 2022 and 2023.

The initial increase in ROE from 12.54% in 2021 to 20.82% in 2023 was driven by improvements in both profitability (EBIT Margin) and efficiency (Asset Turnover), alongside a moderate increase in financial leverage. However, the subsequent decline in ROE to 12.92% in 2025 is attributable to the combined effect of a decreasing EBIT Margin, a slight reduction in Asset Turnover, and a more pronounced decrease in Financial Leverage. The interplay of these factors highlights the sensitivity of ROE to changes in the underlying components of the DuPont analysis.

The period under review demonstrates a dynamic relationship between profitability and efficiency in generating returns on assets. Overall, Return on Assets (ROA) exhibited an increasing trend from 2021 to 2024, followed by a decline in 2025. This fluctuation is attributable to the interplay between Net Profit Margin and Asset Turnover.

Net Profit Margin

Net Profit Margin increased substantially from 8.20% in 2021 to 12.25% in 2022, and continued to rise to 12.68% in 2023. A slight decrease to 12.29% was observed in 2024, before a more pronounced decline to 9.45% in 2025. This suggests improving profitability initially, followed by a stabilization and then a weakening of earnings relative to revenue.

Asset Turnover

Asset Turnover showed a consistent upward trend from 0.55 in 2021 to 0.74 in 2024, indicating increasing efficiency in utilizing assets to generate revenue. However, this trend reversed in 2025, with Asset Turnover decreasing to 0.65. This suggests a reduced ability to generate sales from the asset base in the most recent year.

Return on Assets (ROA)

ROA increased from 4.53% in 2021 to a peak of 9.12% in 2024, driven by improvements in both Net Profit Margin and Asset Turnover. The decline in ROA to 6.15% in 2025 is a result of the simultaneous decrease in both Net Profit Margin and Asset Turnover. The impact of the declining Net Profit Margin appears to be the primary driver of the ROA decrease, as the reduction in margin was more substantial than the reduction in turnover.

The observed patterns indicate a period of strong performance culminating in 2024, followed by a weakening of financial results in 2025. Further investigation into the factors driving the declines in both profitability and asset utilization in 2025 would be warranted.

The four-component disaggregation of Return on Assets (ROA) reveals a period of improvement followed by a decline. Initial increases in profitability and efficiency were subsequently offset by shifts in financial leverage and, ultimately, profitability. The analysis period demonstrates the interplay between margin, turnover, and financial burdens in determining overall asset utilization and return.

Return on Assets (ROA)

ROA increased from 4.53% in 2021 to a peak of 9.12% in 2024. However, a substantial decrease to 6.15% is observed in 2025, indicating a weakening in the company’s ability to generate profit from its assets. This final year decline warrants further investigation.

EBIT Margin

EBIT Margin exhibited a consistent upward trend from 12.50% in 2021 to 17.24% in 2023, suggesting improved operational efficiency and pricing power. A slight decrease to 16.72% occurred in 2024, followed by a more pronounced drop to 13.36% in 2025. This decline in margin is a primary driver of the overall ROA decrease in the final year.

Asset Turnover

Asset Turnover showed consistent improvement from 0.55 in 2021 to 0.74 in 2024, indicating increasing efficiency in utilizing assets to generate sales. However, a decrease to 0.65 in 2025 is noted, partially offsetting the positive impact of margin improvements in prior years. The 2025 decrease suggests a potential slowdown in sales generation relative to the asset base.

Interest Burden

The Interest Burden increased from 0.81 in 2021 to 0.91 in 2023, indicating a higher proportion of earnings required to cover interest expenses. While it decreased slightly to 0.88 in 2025, the higher burden in the preceding years contributed to a reduction in net income available to generate ROA. The increase suggests a potential shift in capital structure towards more debt financing.

Tax Burden

The Tax Burden remained relatively stable throughout the period, fluctuating between 0.80 and 0.82. This consistency suggests that changes in the effective tax rate did not significantly impact overall profitability or ROA during the analyzed timeframe.

The initial ROA improvement from 2021 to 2024 was driven by increases in both EBIT Margin and Asset Turnover. However, the decline in ROA in 2025 is attributable to a combination of decreased EBIT Margin and Asset Turnover, partially mitigated by a slight reduction in the Interest Burden. The significant drop in margin appears to be the dominant factor influencing the overall decline in asset performance.

The financial performance, as indicated by the provided metrics, demonstrates a period of improvement followed by a potential shift in profitability. A review of the net profit margin decomposition reveals key trends in the company’s operational efficiency and financial leverage.

Net Profit Margin

The net profit margin exhibited an upward trajectory from 8.20% in 2021 to a peak of 12.68% in 2023. However, this was followed by a slight decrease to 12.29% in 2024 and a more pronounced decline to 9.45% in 2025. This suggests a potential weakening in overall profitability towards the end of the analyzed period.

EBIT Margin

The EBIT margin generally mirrored the trend of the net profit margin, increasing from 12.50% in 2021 to 17.24% in 2023. Similar to the net profit margin, the EBIT margin experienced a decline in subsequent years, falling to 16.72% in 2024 and 13.36% in 2025. This indicates that the core operational profitability is also experiencing downward pressure.

Tax Burden

The tax burden remained remarkably stable throughout the period, fluctuating minimally between 0.81 and 0.80. This consistency suggests that changes in the effective tax rate did not significantly contribute to the observed fluctuations in net profit margin.

Interest Burden

The interest burden demonstrated an increasing trend from 0.81 in 2021 to 0.92 in 2024. A slight decrease to 0.88 was observed in 2025. This increase suggests a growing impact of financing costs on overall profitability, potentially contributing to the decline in net profit margin, particularly in 2022, 2023 and 2024. The slight decrease in 2025 may indicate some mitigation of this effect.

In summary, the company experienced improving profitability through 2023, as evidenced by both the net profit margin and EBIT margin. However, the subsequent decline in these margins, coupled with the increasing interest burden, suggests a potential shift in the company’s financial performance. The stable tax burden indicates that tax-related factors were not a primary driver of these changes.