DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Quarterly Data
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
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- Balance Sheet: Assets
- Common-Size Balance Sheet: Assets
- Analysis of Profitability Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2006
- Operating Profit Margin since 2006
- Current Ratio since 2006
- Price to Book Value (P/BV) since 2006
- Price to Sales (P/S) since 2006
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Two-Component Disaggregation of ROE
Time Warner Cable Inc., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2016-03-31), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-09-30), 10-Q (reporting date: 2015-06-30), 10-Q (reporting date: 2015-03-31), 10-K (reporting date: 2014-12-31), 10-Q (reporting date: 2014-09-30), 10-Q (reporting date: 2014-06-30), 10-Q (reporting date: 2014-03-31), 10-K (reporting date: 2013-12-31), 10-Q (reporting date: 2013-09-30), 10-Q (reporting date: 2013-06-30), 10-Q (reporting date: 2013-03-31), 10-K (reporting date: 2012-12-31), 10-Q (reporting date: 2012-09-30), 10-Q (reporting date: 2012-06-30), 10-Q (reporting date: 2012-03-31).
The analyzed financial data exhibits discernible trends over the sixteen-quarter period. The three key metrics under consideration—Return on Assets (ROA), Financial Leverage, and Return on Equity (ROE)—demonstrate interconnected movement patterns and varying performance trajectories.
- Return on Assets (ROA)
- The ROA started at 3.49% in the first quarter of 2012 and showed a moderate increasing trend, peaking at 4.48% in mid-2013. Subsequently, the ROA experienced a gradual decline through the remaining periods, reaching 3.78% by the first quarter of 2016. This pattern suggests an initial improvement in asset profitability, followed by a period of diminishing efficiency in asset utilization toward the end of the time span.
- Financial Leverage
- Financial leverage ratio began at 6.56 and generally increased until the second quarter of 2013, attaining a high point of 7.34. After this peak, leverage steadily decreased over subsequent periods, falling to 5.32 by the first quarter of 2016. This decline indicates a progressive reduction in the company’s reliance on debt financing relative to equity, potentially reflecting a strategy focused on deleveraging or improved equity financing.
- Return on Equity (ROE)
- ROE mirrored the pattern of ROA and financial leverage in several respects. Starting at 22.91% in early 2012, ROE increased sharply to reach a maximum of 32.84% in mid-2013. Following this, a consistent downward trend occurred, with ROE declining to 20.09% by the start of 2016. Given that ROE is influenced by both ROA and financial leverage, the peak and subsequent decline coincide with changes observed in the other two metrics, indicating a reduction in overall shareholder returns over time.
Analytically, the rise in both ROA and financial leverage through mid-2013 contributed to an elevated ROE, signifying enhanced profitability amplified by increased debt usage. The subsequent decline in financial leverage suggests a deleveraging phase, which, combined with reduced asset profitability, led to lower ROA and ROE values. This shift implies a strategic rebalancing toward lower risk but potentially decreased returns to shareholders.
In conclusion, the data reflects a financial cycle characterized by initial growth in profitability and leverage, followed by a period of contraction and risk reduction. The downward trends in ROA and ROE, coupled with decreasing leverage, may indicate challenges in sustaining operational efficiency and growth or deliberate repositioning to strengthen the balance sheet over the analyzed period.
Three-Component Disaggregation of ROE
Time Warner Cable Inc., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2016-03-31), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-09-30), 10-Q (reporting date: 2015-06-30), 10-Q (reporting date: 2015-03-31), 10-K (reporting date: 2014-12-31), 10-Q (reporting date: 2014-09-30), 10-Q (reporting date: 2014-06-30), 10-Q (reporting date: 2014-03-31), 10-K (reporting date: 2013-12-31), 10-Q (reporting date: 2013-09-30), 10-Q (reporting date: 2013-06-30), 10-Q (reporting date: 2013-03-31), 10-K (reporting date: 2012-12-31), 10-Q (reporting date: 2012-09-30), 10-Q (reporting date: 2012-06-30), 10-Q (reporting date: 2012-03-31).
- Net Profit Margin
- The net profit margin demonstrated fluctuations during the observed periods, starting at 8.62% in the first quarter of 2012 and peaking at 10.07% in mid-2013. After this peak, there was a gradual decline, with values trending downwards to 7.80% by the first quarter of 2016. This indicates a reduction in profitability as a percentage of sales over time after a mid-term peak.
- Asset Turnover
- Asset turnover showed a steady and slight upward trend throughout the timeframe. Beginning at 0.41 in early 2012, it increased gradually to reach 0.48 by the first quarter of 2016. This suggests a progressive improvement in the efficiency of asset utilization to generate revenue.
- Financial Leverage
- The financial leverage ratio exhibited a downward trend after initially rising. Starting from 6.56 in the first quarter of 2012, it peaked at 7.34 in mid-2013, then consistently declined to 5.32 by the first quarter of 2016. This decline signals a reduction in the use of debt relative to equity, implying potentially lower financial risk or altered capital structure strategy over time.
- Return on Equity (ROE)
- Return on equity increased from 22.91% in early 2012 to a high of 32.84% in mid-2013. After this peak, ROE followed a consistent decline, dropping to around 20.09% by the first quarter of 2016. The decrease in ROE corresponds with declines in net profit margin and financial leverage, despite improving asset turnover, indicating that reduced profitability and leverage impacted overall equity returns.
- Summary Insights
- The data reveals a period of increasing profitability and leverage up to mid-2013, followed by a sustained reduction in net profit margin, financial leverage, and return on equity. The steady improvement in asset turnover suggests better operational efficiency. However, the declining profitability and leverage indicate a more conservative financial approach and diminishing returns to equity holders in recent periods.
Two-Component Disaggregation of ROA
Time Warner Cable Inc., decomposition of ROA (quarterly data)
Based on: 10-Q (reporting date: 2016-03-31), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-09-30), 10-Q (reporting date: 2015-06-30), 10-Q (reporting date: 2015-03-31), 10-K (reporting date: 2014-12-31), 10-Q (reporting date: 2014-09-30), 10-Q (reporting date: 2014-06-30), 10-Q (reporting date: 2014-03-31), 10-K (reporting date: 2013-12-31), 10-Q (reporting date: 2013-09-30), 10-Q (reporting date: 2013-06-30), 10-Q (reporting date: 2013-03-31), 10-K (reporting date: 2012-12-31), 10-Q (reporting date: 2012-09-30), 10-Q (reporting date: 2012-06-30), 10-Q (reporting date: 2012-03-31).
- Net Profit Margin
- The net profit margin exhibited moderate fluctuations throughout the periods analyzed. It started at 8.62% in March 2012, increasing to a peak of 10.56% in September 2012. Following this peak, the margin stabilized around 10% until December 2012, then experienced a gradual decline beginning in early 2013. By March 2016, the net profit margin had decreased to approximately 7.8%, indicating a downward trend in profitability relative to revenue over the longer term.
- Asset Turnover
- Asset turnover demonstrated a consistent upward trajectory over the timeframe. Beginning at 0.41 in March 2012, the ratio showed incremental improvements each quarter, reaching 0.48 by March 2016. This trend suggests an increasingly efficient use of assets to generate sales, reflecting potential operational enhancements or improved asset management practices.
- Return on Assets (ROA)
- The return on assets mirrored a pattern influenced by changes in both profitability and asset utilization. Starting at 3.49% in March 2012, ROA rose to a high of approximately 4.48% by June 2013. Afterward, it experienced a gradual decrease, settling near 3.78% by March 2016. This decline correlates with the decreasing net profit margin and suggests that despite improved asset turnover, overall asset profitability diminished slightly over the period.
- Overall Analysis
- The company showed improvement in asset efficiency as reflected by steady growth in asset turnover. However, this improvement was offset by declining profitability margins, leading to a modest reduction in the overall return on assets. The data suggests that while assets were managed more effectively to generate revenue, challenges in maintaining profit margins constrained overall asset returns.