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
Time Warner Cable Inc., decomposition of ROE
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Return on Assets (ROA)
- The Return on Assets showed an overall fluctuating trend over the five-year period. It increased from 3.45% in 2011 to a peak of 4.33% in 2012, suggesting improved efficiency in asset utilization during that year. Following this peak, ROA slightly decreased to 4.05% in 2013 and then exhibited a modest recovery to 4.19% in 2014. However, in 2015, there was a decline to 3.74%, indicating a reduction in the company's ability to generate profits from its assets compared to previous years.
- Financial Leverage
- The financial leverage ratio demonstrated a declining trend after an initial increase. Starting at 6.41 in 2011, leverage increased to a high of 6.95 in 2013, reflecting more extensive use of debt relative to equity. From 2014 onwards, the ratio decreased substantially to 6.05 and then to 5.48 in 2015, suggesting a strategic reduction in reliance on debt financing, which could indicate efforts to strengthen the capital structure and reduce financial risk.
- Return on Equity (ROE)
- Return on Equity exhibited a general downward trend after a significant rise between 2011 and 2012. ROE increased sharply from 22.11% to 29.61% in 2012, reflecting enhanced profitability for shareholders. Subsequently, there was a gradual decrease, with ROE falling to 28.14% in 2013, then further down to 25.35% in 2014, and reaching the lowest point of 20.5% in 2015. This decline may be associated with the reduction in financial leverage and/or lower overall profitability during these years.
Three-Component Disaggregation of ROE
Time Warner Cable Inc., decomposition of ROE
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Net Profit Margin
- The net profit margin exhibited an initial increase from 8.46% in 2011 to a peak of 10.08% in 2012. Subsequently, it experienced a decline over the following three years, dropping to 7.78% by the end of 2015. This indicates a reduction in profitability relative to sales after 2012, suggesting potential challenges in controlling costs or pricing pressures.
- Asset Turnover
- The asset turnover ratio demonstrated a consistent upward trend over the period, rising steadily from 0.41 in 2011 to 0.48 in 2015. This implies an improving efficiency in utilizing assets to generate revenue, reflecting better operational performance or asset management.
- Financial Leverage
- Financial leverage increased from 6.41 in 2011, peaking at 6.95 in 2013, before trending downward to 5.48 by 2015. The initial rise suggests greater reliance on debt financing which then decreased, pointing to efforts to reduce leverage and potentially enhance financial stability.
- Return on Equity (ROE)
- Return on equity grew significantly from 22.11% in 2011 to a high of 29.61% in 2012, maintaining a relatively strong level through 2013 at 28.14%. However, ROE declined each subsequent year to 20.5% in 2015. This trajectory mirrors the pattern in net profit margin and financial leverage, indicating that reduced profitability and decreased leverage have impacted shareholder returns.
Five-Component Disaggregation of ROE
Time Warner Cable Inc., decomposition of ROE
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
The analysis of the provided financial ratios over the five-year period reveals several notable trends.
- Tax Burden
- The tax burden ratio shows a steady decline from 0.68 in 2011 to 0.62 in 2015, indicating a gradual decrease in the proportion of earnings paid as taxes. This trend suggests improving tax efficiency or changes in tax strategy over the period.
- Interest Burden
- The interest burden ratio initially increases from 0.62 in 2011 to 0.70 in 2014, before slightly declining to 0.68 in 2015. This pattern indicates an improvement in the company's ability to cover interest expenses through operating income up to 2014, with a minor reduction in 2015.
- EBIT Margin
- The EBIT margin rises significantly from 20.25% in 2011 to a peak of 23.13% in 2012. Afterward, it declines gradually each subsequent year to 18.53% in 2015. This suggests that the company experienced increased operating profitability early in the period but faced margin pressures in the later years.
- Asset Turnover
- The asset turnover ratio shows a consistent upward trend from 0.41 in 2011 to 0.48 in 2015, reflecting improved efficiency in utilizing assets to generate revenue throughout the period.
- Financial Leverage
- Financial leverage increases slightly from 6.41 in 2011 to 6.95 in 2013, but then decreases steadily to 5.48 in 2015. This shift suggests a reduction in reliance on debt financing after 2013, indicating a potential strengthening of the capital structure or deleveraging efforts.
- Return on Equity (ROE)
- ROE improves markedly from 22.11% in 2011 to a high of 29.61% in 2012, followed by a gradual decline to 20.5% in 2015. The initial increase reflects enhanced profitability or efficient use of equity, but the subsequent decrease aligns with the declining EBIT margins and financial leverage seen during the later years.
Overall, the company demonstrates trends of improving operational efficiency and tax management, alongside an initial phase of high profitability that gradually diminishes by 2015. The reduction in financial leverage after 2013 indicates a move toward lower financial risk, which is accompanied by decreasing returns on equity in the latter part of the period.
Two-Component Disaggregation of ROA
Time Warner Cable Inc., decomposition of ROA
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
The financial ratios indicate several observable trends over the five-year period ending in 2015.
- Net Profit Margin
- The net profit margin showed an initial increase from 8.46% in 2011 to a peak of 10.08% in 2012. Following this peak, the margin declined gradually each year, reaching 7.78% by the end of 2015. This suggests a reduction in profitability relative to sales over the latter part of the period.
- Asset Turnover
- Asset turnover exhibited a consistent upward trend throughout the period, increasing steadily from 0.41 in 2011 to 0.48 in 2015. This improvement indicates enhanced efficiency in utilizing assets to generate revenue over time.
- Return on Assets (ROA)
- Return on assets followed a pattern similar to that of net profit margin. It increased from 3.45% in 2011 to 4.33% in 2012, then experienced a gradual decline to 3.74% by the end of 2015. This decline suggests that the overall profitability generated from the company's assets weakened in the final years despite improved asset turnover.
In summary, the data reflect a scenario where efficiency in asset utilization improved steadily, while profitability margins and returns on assets peaked early in the period and then decreased. The dissociation between increasing asset turnover and declining profitability ratios suggests that factors other than asset utilization, such as cost management or pricing pressures, may have impacted net profit margins and returns adversely in the later years.
Four-Component Disaggregation of ROA
Time Warner Cable Inc., decomposition of ROA
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Tax Burden
- The tax burden ratio exhibits a gradual decline over the five-year period, decreasing from 0.68 in 2011 to 0.62 in 2015. This indicates a slight reduction in the proportion of earnings paid as taxes, which could potentially enhance net profitability.
- Interest Burden
- The interest burden shows some fluctuation, initially increasing from 0.62 in 2011 to a peak of 0.70 in 2014, before decreasing slightly to 0.68 in 2015. This trend suggests changes in interest expenses relative to earnings before interest and taxes, with a general improvement until 2014, followed by a mild deterioration in the final year.
- EBIT Margin
- The EBIT margin demonstrates variability, increasing from 20.25% in 2011 to a high of 23.13% in 2012, before declining steadily to 18.53% in 2015. This decline over the last three years reflects a reduction in operating profitability, which could be indicative of margin pressure or rising operating costs.
- Asset Turnover
- Asset turnover has shown consistent improvement throughout the period, climbing from 0.41 in 2011 to 0.48 in 2015. This upward trend indicates increasing efficiency in utilizing assets to generate revenues.
- Return on Assets (ROA)
- ROA increased from 3.45% in 2011 to a peak of 4.33% in 2012, followed by fluctuations around the 4% level until 2014, then decreased to 3.74% in 2015. This pattern suggests variations in overall profitability, influenced by changing operational efficiency, asset utilization, and cost factors.
Disaggregation of Net Profit Margin
Time Warner Cable Inc., decomposition of net profit margin ratio
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Tax Burden
- The tax burden ratio shows a gradual decline over the five-year period, decreasing from 0.68 in 2011 to 0.62 in 2015. This indicates a reduction in the proportion of earnings paid as taxes, suggesting improved tax efficiency or possible changes in tax regulations affecting the company.
- Interest Burden
- The interest burden ratio initially increased from 0.62 in 2011 to a peak of 0.70 in 2014, before decreasing slightly to 0.68 in 2015. This trend reflects a relatively stable but slightly fluctuating cost of debt, with interest expenses remaining a significant factor impacting earnings before interest and taxes.
- EBIT Margin
- The EBIT margin experienced some volatility, rising from 20.25% in 2011 to a high of 23.13% in 2012, then declining steadily to 18.53% by 2015. This downward trend in operating profitability may suggest increasing operating costs or pricing pressures over the later years.
- Net Profit Margin
- Net profit margin also showed variability, increasing from 8.46% in 2011 to 10.08% in 2012, followed by a gradual decline to 7.78% in 2015. This pattern mirrors the EBIT margin trend and indicates diminishing overall profitability, potentially driven by declining operating margins and the impact of non-operating expenses or other factors.