DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
Two-Component Disaggregation of ROE
ServiceNow Inc., decomposition of ROE
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Return on Assets (ROA)
- The return on assets shows an overall upward trend from 1.36% in 2020 to a peak of 9.96% in 2023, indicating improving efficiency in asset utilization to generate profits. However, it declines to 6.99% in 2024, suggesting a reduction in asset profitability during the most recent period examined.
- Financial Leverage
- Financial leverage exhibits a consistent decreasing trend over the five-year period, declining from a ratio of 3.07 in 2020 to 2.12 in 2024. This suggests a gradual reduction in reliance on debt relative to equity, signaling a potentially more conservative capital structure over time.
- Return on Equity (ROE)
- The return on equity follows a pattern similar to ROA, increasing from 4.18% in 2020 to a high of 22.69% in 2023, which reflects substantial growth in shareholder returns. In 2024, there is a notable decline to 14.83%, indicating a decrease in the profitability attributed to shareholders despite still being significantly higher than initial levels.
- Summary of Trends
- The data reflects an overall enhancement in profitability and efficiency from 2020 to 2023, with both ROA and ROE rising sharply, while financial leverage decreases steadily, implying improved financial risk management and shift toward greater equity reliance. The dip in ROA and ROE in 2024 may point to emerging challenges or changes in operational performance or market conditions. Despite this decline, profitability measures in 2024 remain above early-period values, suggesting sustained but moderated growth.
Three-Component Disaggregation of ROE
ServiceNow Inc., decomposition of ROE
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Net Profit Margin
- The net profit margin demonstrates an overall upward trend from 2.62% in 2020, reaching a peak of 19.3% in 2023. However, it declines noticeably to 12.97% in 2024, indicating a reduction in profitability relative to revenue during the last recorded year, though remaining significantly above early period levels.
- Asset Turnover
- The asset turnover ratio remains relatively stable throughout the period, fluctuating narrowly between 0.52 and 0.55. This suggests consistent efficiency in using assets to generate sales, with no significant improvements or deteriorations observed.
- Financial Leverage
- Financial leverage shows a steady decline over the five-year period, decreasing from a ratio of 3.07 in 2020 to 2.12 in 2024. This indicates a strategic move toward reducing reliance on debt or external financing, potentially lowering financial risk.
- Return on Equity (ROE)
- Return on equity increases moderately from 4.18% in 2020 to 6.46% in 2022, followed by a sharp rise to 22.69% in 2023. In 2024, ROE decreases to 14.83%, which, despite the drop, remains considerably higher than earlier years. This pattern indicates improved efficiency in generating returns for shareholders, particularly in 2023, with some normalization afterward.
Five-Component Disaggregation of ROE
ServiceNow Inc., decomposition of ROE
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Tax Burden
- The tax burden ratio fluctuated over the analyzed period. Starting at 0.79 in 2020, it increased notably to a peak of 1.72 in 2023, before decreasing to 0.82 in 2024. This indicates considerable variability in the company’s effective tax rate or tax-related expenses during these years.
- Interest Burden
- The interest burden ratio showed a gradual improvement throughout the period. It increased steadily from 0.82 in 2020 to 0.99 in 2024, suggesting that the company’s EBIT was increasingly less eroded by interest expenses, indicating better management of financial costs or reduced debt servicing burden.
- EBIT Margin
- The EBIT margin demonstrated a significant upward trend. Starting relatively modestly at 4.03% in 2020, it rose consistently each year to reach 16.03% by 2024. This marked improvement reflects enhanced operational efficiency and profitability before interest and tax expenses.
- Asset Turnover
- Asset turnover remained relatively stable, fluctuating slightly between 0.52 and 0.55 over the period. This stability indicates that the company's efficiency in using its assets to generate revenue was consistent, with no significant gains or losses in asset utilization.
- Financial Leverage
- Financial leverage showed a clear declining trend, decreasing from 3.07 in 2020 to 2.12 in 2024. This decline suggests that the company reduced its reliance on debt financing relative to equity, potentially signaling a stronger equity base or debt reduction strategy.
- Return on Equity (ROE)
- The return on equity experienced considerable variation. It increased moderately from 4.18% in 2020 to a peak of 22.69% in 2023, before decreasing to 14.83% in 2024. This pattern indicates improved profitability and value generation for shareholders up to 2023, followed by some reduction in shareholder returns in the last year.
Two-Component Disaggregation of ROA
ServiceNow Inc., decomposition of ROA
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Net Profit Margin
- The net profit margin indicates a general upward trend from 2.62% in 2020 to a peak of 19.3% in 2023, before declining to 12.97% in 2024. This suggests improved profitability over the initial years, with a significant increase in 2023, followed by a notable decrease in the subsequent year, indicating possible variations in cost control or revenue generation effectiveness.
- Asset Turnover
- The asset turnover ratio remains relatively stable over the period, fluctuating slightly between 0.52 and 0.55. This stability implies consistent efficiency in utilizing assets to generate revenue, with no major enhancements or declines observed.
- Return on Assets (ROA)
- The return on assets shows a progressive increase from 1.36% in 2020 to a high of 9.96% in 2023, before decreasing to 6.99% in 2024. This pattern suggests improved overall asset profitability over several years, reflecting enhanced operational performance, coupled with a reduction in 2024 which might be related to the decline in net profit margin during the same period.
Four-Component Disaggregation of ROA
ServiceNow Inc., decomposition of ROA
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Tax Burden
- The tax burden ratio fluctuated over the observed period, starting at 0.79 in 2020 and rising to 0.92 in 2021. It then declined to 0.81 in 2022, increased sharply to 1.72 in 2023, and reverted to 0.82 in 2024. This volatility suggests irregular tax impacts or changes in tax strategy, with a notable spike in 2023 that deviates significantly from other years.
- Interest Burden
- The interest burden ratio showed a consistent upward trend, improving from 0.82 in 2020 to 0.99 in 2024. This steady increase indicates a gradual reduction in interest expenses relative to earnings before interest and taxes, which could reflect effective debt management or lower borrowing costs over time.
- EBIT Margin
- The EBIT margin displayed a strong positive trajectory, rising progressively from 4.03% in 2020 to 16.03% in 2024. Notably, the margin accelerated substantially after 2022, more than doubling from 5.88% in 2022 to 11.5% in 2023 and further increasing in 2024. This suggests improved operational efficiency or pricing power leading to enhanced profitability.
- Asset Turnover
- The asset turnover ratio remained relatively stable throughout the period, fluctuating slightly between 0.52 and 0.55. This consistency implies that asset utilization in generating revenue has been steady, with no significant change in the company's efficiency in deploying its assets.
- Return on Assets (ROA)
- The ROA showed an overall increasing trend but with some variability. It increased from 1.36% in 2020 to a peak of 9.96% in 2023, followed by a decrease to 6.99% in 2024. The sharp increase until 2023 reflects enhanced profitability and efficient asset use, but the decline in 2024 might suggest some temporary factors or changes in earnings or asset base affecting returns.
Disaggregation of Net Profit Margin
ServiceNow Inc., decomposition of net profit margin ratio
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Tax Burden
- The tax burden ratio exhibits fluctuations during the analyzed period. Starting at 0.79 in 2020, it reached a peak of 1.72 in 2023, indicating a temporary increase in tax impact relative to pre-tax earnings, before decreasing to 0.82 in 2024, close to the 2020 level. This suggests variability in tax expenses or benefits impacting profitability over time.
- Interest Burden
- The interest burden ratio shows a consistent positive trend, improving from 0.82 in 2020 to 0.99 in 2024. This indicates a steady reduction in interest expenses relative to earnings before interest and taxes, reflecting better management of interest costs or declining debt levels.
- EBIT Margin
- The EBIT margin demonstrates significant improvement over the five-year period. It increased gradually from 4.03% in 2020 to 5.88% in 2022, followed by a marked acceleration to 11.5% in 2023 and further to 16.03% in 2024. This trend indicates enhanced operational efficiency and robust profitability before interest and taxes.
- Net Profit Margin
- The net profit margin follows a variable trajectory. It initially increased moderately from 2.62% in 2020 to 4.49% in 2022. A substantial surge to 19.3% occurred in 2023, signaling a period of exceptional net profitability. However, in 2024, the margin declined to 12.97%, still substantially higher than early years but reflecting some reduction in net returns relative to sales compared to the previous year.