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.
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Two-Component Disaggregation of ROE
Stryker Corp., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Return on Assets (ROA)
- The return on assets exhibited significant fluctuation over the analyzed period. It began at 4.6% in 2017, reaching a peak of 13.05% in 2018, indicating a strong improvement in asset profitability during that year. However, this was followed by a decline to 6.9% in 2019, and a further reduction to 4.66% in 2020. In 2021, a moderate recovery is observed with ROA increasing to 5.76%. This pattern suggests variability in how efficiently the company has utilized its assets to generate earnings, with a notable peak in 2018 and a subsequent decline thereafter.
- Financial Leverage
- Financial leverage showed a gradual increase from 2.23 in 2017 to 2.62 in 2020, implying a rising use of debt relative to equity during this period. However, in 2021, leverage decreased to 2.33. This trend suggests that the company progressively increased its reliance on borrowed funds up to 2020, then slightly reduced leverage in the following year, possibly to manage risk or optimize capital structure.
- Return on Equity (ROE)
- The return on equity demonstrated substantial variability. Beginning at 10.23% in 2017, it surged sharply to 30.29% in 2018, reflecting an exceptional increase in profitability relative to shareholders' equity. Subsequently, ROE declined to 16.26% in 2019 and continued to decrease to 12.22% in 2020. A slight improvement to 13.4% occurred in 2021. This trend indicates an initially high profitability period in 2018, followed by a downward adjustment and moderate stabilization in the ensuing years.
- Overall Analysis
- The financial metrics point to a peak in profitability during 2018 across both ROA and ROE, coinciding with a period of rising financial leverage. The increase in leverage suggests that increased debt might have contributed to enhanced returns in that year. However, the subsequent decline in profitability ratios alongside fluctuations in leverage implies challenges in sustaining those high returns. The modest recovery in 2021 in both ROA and ROE, coupled with a reduction in leverage, may indicate a strategic effort to balance profitability with financial risk. The variability in these key ratios highlights a dynamic financial environment over the five-year span, with significant shifts in performance and capital structure.
Three-Component Disaggregation of ROE
Stryker Corp., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Net Profit Margin
- The net profit margin showed significant fluctuation over the observed period. It peaked in 2018 at 26.12%, representing a notable increase from 8.2% in 2017. After this peak, the margin declined substantially to 13.99% in 2019 and further decreased to 11.14% in 2020. A slight improvement occurred in 2021, with the margin rising to 11.66%. Overall, the margin exhibited a volatile trend with a marked high in 2018 followed by a decline and partial recovery.
- Asset Turnover
- The asset turnover ratio demonstrated a gradual downward trend from 0.56 in 2017 to a low of 0.42 in 2020, indicating reduced efficiency in asset utilization over these years. In 2021, the ratio increased back to 0.49, suggesting some recovery in the company’s ability to generate sales from its assets. The general pattern indicates a decrease in asset efficiency with some improvement at the end of the period.
- Financial Leverage
- Financial leverage showed an increasing trend from 2.23 in 2017 to 2.62 in 2020, indicating a growing use of debt relative to equity during this time. However, in 2021, the leverage ratio declined to 2.33, suggesting a reduction in reliance on debt financing following the prior increase. The pattern implies an initial increase in financial risk followed by a tempering of leverage.
- Return on Equity (ROE)
- The return on equity mirrored the pattern observed in the net profit margin, with a strong peak at 30.29% in 2018, up from 10.23% in 2017. Subsequently, ROE declined steadily to 16.26% in 2019 and further to 12.22% in 2020. A moderate recovery to 13.4% took place in 2021. This indicates that the return generated for shareholders was highest in 2018, followed by a decline and minor rebound in later years.
Five-Component Disaggregation of ROE
Stryker Corp., decomposition of ROE
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio exhibited significant volatility, peaking sharply in 2018 at 1.51 before declining and stabilizing between 0.81 and 0.87 from 2019 to 2021. This suggests variability in effective tax rates or tax-related adjustments during the period, with a normalization trend in later years.
- Interest Burden
- The interest burden ratio remained relatively stable throughout the analyzed years, fluctuating narrowly between 0.86 and 0.9. This stability indicates consistent interest expense management relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin showed a declining trend, starting at 18.56% in 2017 and decreasing steadily to 15.3% by 2021. A notable reduction occurred in 2020, likely reflecting increased costs or revenue pressures impacting operating profitability.
- Asset Turnover
- Asset turnover ratio declined from 0.56 in 2017 to 0.42 in 2020, followed by a recovery to 0.49 in 2021. This pattern suggests a decrease in efficiency in utilizing assets to generate sales over the first four years, with some improvement in the final year.
- Financial Leverage
- Financial leverage increased from 2.23 in 2017 to a peak of 2.62 in 2020 before dropping back to 2.33 in 2021. The rising leverage up to 2020 indicates greater use of debt or liabilities in financing assets, with subsequent deleveraging occurring in 2021.
- Return on Equity (ROE)
- ROE exhibited considerable fluctuation, surging from 10.23% in 2017 to 30.29% in 2018, followed by a sharp decline to 16.26% in 2019 and further decreases to 12.22% and 13.4% in 2020 and 2021, respectively. This variability reflects significant changes in profitability, capital structure, or both, with the peak in 2018 likely influenced by favorable tax effects or exceptional items.
Two-Component Disaggregation of ROA
Stryker Corp., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Net Profit Margin
- The net profit margin exhibited significant fluctuation over the analyzed period. It increased sharply from 8.2% in 2017 to a peak of 26.12% in 2018, indicating a substantial improvement in profitability during that year. However, following this peak, the margin declined to 13.99% in 2019 and remained relatively stable thereafter, with values of 11.14% in 2020 and 11.66% in 2021. This suggests that while the company achieved high profit efficiency in 2018, it was unable to sustain that level of profitability in subsequent years.
- Asset Turnover
- The asset turnover ratio showed a gradual downward trend from 0.56 in 2017 to 0.42 in 2020, reflecting a decreasing efficiency in asset utilization over this period. In 2021, the ratio improved slightly to 0.49, indicating a mild recovery in using assets to generate revenue. Overall, the declining trend up to 2020 may point to challenges in maintaining operational efficiency, partially offset by the modest rebound in the final year.
- Return on Assets (ROA)
- The return on assets followed a pattern similar to net profit margin. It increased markedly from 4.6% in 2017 to 13.05% in 2018, which coincides with the peak in profitability. Following this, ROA decreased to 6.9% in 2019 and continued to decline to its lowest point of 4.66% in 2020. A slight recovery occurred in 2021, with ROA rising to 5.76%. This indicates that the company’s ability to generate returns from its asset base was strongest in 2018 but weakened in the following years, with some improvement in the last reported period.
Four-Component Disaggregation of ROA
Stryker Corp., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × | |||||
| Dec 31, 2017 | = | × | × | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio exhibited significant fluctuations over the analyzed period. It started below 0.5 in 2017, surged to a peak above 1.5 in 2018, then declined but remained above 0.8 from 2019 through 2021. This pattern suggests variable tax impacts on profits, with 2018 being an outlier year featuring an unusually high tax burden.
- Interest Burden
- The interest burden ratio maintained a relatively stable trend, ranging narrowly between 0.86 and 0.9 throughout the five years. This stability indicates consistent interest expense management relative to earnings before interest and taxes, with a slight improvement noted in 2020.
- EBIT Margin
- The EBIT margin percentage demonstrated a downward trend from 18.56% in 2017 to 15.3% in 2021. The margin peaked slightly in 2018 and 2019 near 19%, followed by a pronounced decrease starting in 2020, reflecting reduced operating profitability in the latter part of the period.
- Asset Turnover
- Asset turnover declined from 0.56 in 2017 to a low of 0.42 in 2020, before recovering to 0.49 in 2021. This trajectory indicates a decrease in the efficiency of asset usage to generate revenue, with some improvement observed in the final year of the dataset.
- Return on Assets (ROA)
- The ROA percentage revealed considerable volatility, beginning at a moderate 4.6% in 2017, reaching a peak of 13.05% in 2018, and subsequently falling to levels below 6% for the remaining years. The initial increase suggests improved profitability relative to assets in 2018, but this was not sustained.
Disaggregation of Net Profit Margin
Stryker Corp., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden exhibited significant volatility over the observed period. Beginning at 0.49 in 2017, it surged to 1.51 in 2018, indicating an unusual taxation or adjustment during that year. Subsequently, it declined to 0.81 in 2019 and stabilized somewhat, maintaining values around 0.82 and 0.87 in 2020 and 2021 respectively.
- Interest Burden
- The interest burden showed relative stability across the five years. Starting at 0.89 in 2017, it experienced slight increments and decrements, peaking at 0.9 in 2018 and 2019, then decreasing marginally to 0.86 in 2020, and slightly rising again to 0.87 in 2021. This suggests a generally consistent interest expense impact on earnings before taxes.
- EBIT Margin
- There was a moderate downward trend in the EBIT margin. From 18.56% in 2017, it increased slightly to 19.26% in 2018 before slightly declining to 19.14% in 2019. The margin then dropped more noticeably to 15.81% in 2020 and further to 15.3% in 2021, reflecting potential pressure on operating profitability during the latter years.
- Net Profit Margin
- The net profit margin showed considerable fluctuation. Starting at 8.2% in 2017, it rose sharply to 26.12% in 2018, indicating a strong profitability boost or possibly a non-recurring benefit. However, it decreased notably to 13.99% in 2019, continued dropping to 11.14% in 2020, and then increased slightly to 11.66% in 2021. This pattern reveals a peak in profitability in 2018, followed by a correction and stabilization at lower profitability levels in subsequent years.