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
Time Warner Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × | |||
| Dec 31, 2014 | = | × | |||
| Dec 31, 2013 | = | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Return on Assets (ROA)
- The Return on Assets demonstrated a generally positive trend over the five-year period. Starting at 5.43% in 2013, it increased moderately to 6.05% in 2014, then remained relatively stable through 2015 and 2016 with slight fluctuations around 6%. A more significant increase occurred in 2017, reaching 7.58%, indicating improved efficiency in asset utilization toward the end of the period.
- Financial Leverage
- Financial leverage showed a gradual upward trend from 2013 to 2016, increasing from 2.27 to a peak of 2.71. In 2017, however, it decreased to 2.44. This pattern suggests that the company progressively increased its use of debt relative to equity until 2016, followed by a deleveraging move in the final year. The reduction in leverage in 2017 could indicate a shift towards a more conservative capital structure.
- Return on Equity (ROE)
- Return on Equity consistently increased throughout the entire period. Beginning at 12.34% in 2013, it rose steadily each year, reaching 15.64% in 2014, then climbing further to 16.23% and 16.13% in 2015 and 2016, respectively, followed by a notable increase to 18.49% in 2017. The overall rise in ROE reflects growing profitability relative to shareholders' equity, aligning with the observed improvements in ROA and highlighting effective use of leverage and asset management.
Three-Component Disaggregation of ROE
Time Warner Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Net Profit Margin
- The Net Profit Margin shows a generally positive trend over the five-year period. Starting at 12.39% in 2013, it increased to 13.99% in 2014, slightly dipped to 13.63% in 2015, and continued with a marginal decrease to 13.39% in 2016. A notable improvement occurred in 2017 when the margin rose significantly to 16.78%, suggesting enhanced profitability and greater efficiency in controlling costs relative to revenues.
- Asset Turnover
- The Asset Turnover ratio remained relatively stable throughout the period, fluctuating minimally between 0.43 and 0.45. This stability indicates consistent effectiveness in utilizing assets to generate revenue, with no substantial improvement or deterioration noted during these years.
- Financial Leverage
- Financial Leverage exhibited some variability, increasing from 2.27 in 2013 to a peak of 2.71 in 2016, indicating a growing reliance on debt or other liabilities to finance assets during those years. However, in 2017, the leverage ratio decreased to 2.44, suggesting a move towards a more conservative capital structure or improved equity financing relative to debt.
- Return on Equity (ROE)
- Return on Equity showed a steady and significant upward trend from 12.34% in 2013 to 18.49% in 2017. This improvement reflects enhanced overall efficiency and profitability from the shareholders' perspective. The consistent increase in ROE aligns with the improvements observed in Net Profit Margin, albeit with fluctuations in Financial Leverage, which partially amplifies the returns to equity holders.
Five-Component Disaggregation of ROE
Time Warner Inc., decomposition of ROE
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Tax Burden
- The tax burden ratio experienced fluctuations over the observed period. It increased significantly from 0.68 in 2013 to 0.83 in 2014, then decreased to 0.7 in 2015, followed by a moderate rise to 0.75 in 2016 and reached its highest point at 0.88 in 2017. This indicates variability in the effective tax rate impacting the company's profitability after taxes.
- Interest Burden
- The interest burden ratio showed a slight decline from 0.81 in 2013 to 0.77 in 2014, then modestly improved to 0.8 in 2015, decreased again to 0.79 in 2016, and rose to 0.83 in 2017. The overall pattern suggests relatively stable interest expenses relative to earnings before interest and taxes, with minor fluctuations.
- EBIT Margin
- The EBIT margin remained relatively consistent, with a small downward trend from 22.56% in 2013 to 21.8% in 2014. It then rebounded to 24.42% in 2015, decreased to 22.49% in 2016, and slightly increased to 22.9% in 2017. This indicates sustained operating profitability with some variability year to year.
- Asset Turnover
- Asset turnover ratios held steady throughout the period, fluctuating minimally between 0.43 and 0.45. This stability suggests consistent efficiency in utilizing assets to generate revenue over the years.
- Financial Leverage
- Financial leverage increased from 2.27 in 2013 to a peak of 2.71 in 2016, before decreasing to 2.44 in 2017. The upward trend until 2016 implies growing reliance on debt financing, while the decline in 2017 indicates some deleveraging or reduction in debt relative to equity.
- Return on Equity (ROE)
- ROE demonstrated a positive upward trend, starting at 12.34% in 2013 and increasing steadily to 18.49% in 2017. This growth indicates improving overall profitability and efficiency in generating returns for shareholders, reflecting effective utilization of equity over the period.
Two-Component Disaggregation of ROA
Time Warner Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | |||
| Dec 31, 2016 | = | × | |||
| Dec 31, 2015 | = | × | |||
| Dec 31, 2014 | = | × | |||
| Dec 31, 2013 | = | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Net Profit Margin
- The net profit margin exhibited a generally positive trend over the five-year period. Starting at 12.39% in 2013, it increased to 13.99% in 2014, experienced a slight decrease to 13.63% in 2015, and a further marginal decline to 13.39% in 2016. However, in 2017, the margin improved significantly to 16.78%, representing the highest margin in the period and indicating enhanced profitability efficiency in that year.
- Asset Turnover
- Asset turnover remained relatively stable throughout the analyzed years, with only minimal fluctuations. The ratio started at 0.44 in 2013, dipped slightly to 0.43 in 2014, then returned to 0.44 in 2015 and 2016, before increasing slightly to 0.45 in 2017. This stability suggests consistent efficiency in utilizing assets to generate sales.
- Return on Assets (ROA)
- Return on assets followed a trend that mostly corresponded with changes in net profit margin while asset turnover remained stable. It began at 5.43% in 2013, increased to 6.05% in 2014, then slightly decreased to 6.00% in 2015 and 5.95% in 2016. In 2017, ROA showed a noteworthy growth to 7.58%, reaching the highest point in the period and reflecting improved overall effectiveness in asset utilization to generate net income.
Four-Component Disaggregation of ROA
Time Warner Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | × | × | |||||
| Dec 31, 2016 | = | × | × | × | |||||
| Dec 31, 2015 | = | × | × | × | |||||
| Dec 31, 2014 | = | × | × | × | |||||
| Dec 31, 2013 | = | × | × | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Tax Burden
- The tax burden ratio exhibited a fluctuating pattern over the periods, starting at 0.68 in 2013, increasing significantly to 0.83 in 2014, then declining to 0.7 in 2015, followed by a modest rise to 0.75 in 2016, and reaching the highest point of 0.88 in 2017. This suggests variability in the effective tax rate, with an overall increasing tendency toward the end of the period.
- Interest Burden
- The interest burden ratio showed relatively stable behavior, fluctuating mildly between 0.77 and 0.83. It started at 0.81 in 2013, decreased to its lowest at 0.77 in 2014, then generally increased to 0.83 by 2017. The changes indicate a consistent ability to manage interest expenses relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin demonstrated some variability but maintained a consistent profitability range. It was 22.56% in 2013, dipped slightly to 21.8% in 2014, peaked at 24.42% in 2015, then decreased to around 22.5% in 2016 and slightly increased again to 22.9% in 2017. This reflects a stable operating profitability with a notable peak in 2015.
- Asset Turnover
- Asset turnover remained remarkably steady throughout the observed years, holding around 0.44 to 0.45. This stability indicates consistent efficiency in using assets to generate revenue, with no significant changes in asset utilization.
- Return on Assets (ROA)
- Return on assets experienced moderate fluctuations, beginning at 5.43% in 2013 and increasing to 6.05% in 2014. After a slight decrease to 6% in 2015 and a minor decline to 5.95% in 2016, ROA showed a notable improvement to 7.58% in 2017. The overall trend signals enhanced profitability relative to assets by the end of the period.
Disaggregation of Net Profit Margin
Time Warner Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × |
Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).
- Tax Burden
- The tax burden ratio exhibits variability over the analyzed period. It increased significantly from 0.68 in 2013 to 0.83 in 2014, then decreased to 0.70 in 2015. The ratio experienced a moderate rise following that, reaching 0.75 in 2016 and then further increasing to 0.88 in 2017. This indicates fluctuating tax impacts on earnings, with the highest tax burden recorded in the final year.
- Interest Burden
- The interest burden ratio shows relative stability with minor fluctuations. It decreased from 0.81 in 2013 to 0.77 in 2014, then slightly increased to 0.80 in 2015. A marginal decline to 0.79 was observed in 2016, followed by a rise to 0.83 in 2017. Overall, the interest burden demonstrates consistent handling of interest expenses, with a slight upward trend towards the end of the period.
- EBIT Margin
- The EBIT margin reflects changes in operational profitability. After a decrease from 22.56% in 2013 to 21.8% in 2014, it improved significantly to 24.42% in 2015. This was followed by a decline to 22.49% in 2016 and a modest increase to 22.9% in 2017. The figures suggest variability in EBIT efficiency, with a notable peak in 2015.
- Net Profit Margin
- The net profit margin generally trended upward over the period. Starting at 12.39% in 2013, it rose consistently to 13.99% in 2014, then slightly declined to 13.63% in 2015 and to 13.39% in 2016. In 2017, the net profit margin increased markedly to 16.78%, indicating improvements in overall profitability and cost management.