Waste Management Inc. (NYSE:WM)

The financial data reveals several important trends in the company's profitability and leverage from the first quarter of 2017 through the last quarter of 2021. The analysis centers on three key metrics: Return on Assets (ROA), Financial Leverage, and Return on Equity (ROE).

Return on Assets (ROA)

The ROA data, available starting from March 31, 2017, shows an upward trend in 2017 and early 2018, peaking at 10.17% in December 2017. After reaching this peak, ROA experiences a steady decline throughout 2018 and 2019, descending to a low point of approximately 6.02% by March 31, 2020. The metric stabilizes during 2020 with minor fluctuations around 6%, and then decreases further in early 2021 to reach a low of 5.1% in the first quarter. However, the ROA rebounds moderately toward the end of 2021, finishing at 6.24%. Overall, this indicates a peak in asset efficiency in 2017 followed by a gradual erosion, with some recovery seen in the last period.

Financial Leverage

The financial leverage ratio oscillates mildly throughout the observed period. Starting at 3.74 in March 2017, it increases slightly to near 3.97 by September 2017, then fluctuates around the mid-3.6 to 4.0 range. Notable is a peak above 4.0 seen in March 2020, followed by a decrease to 3.46 by September 2020, which is the lowest leverage point in the series. After this dip, leverage starts increasing again, reaching its highest point of 4.08 in December 2021. The variations suggest adjustments in capital structure or debt management over time, especially the reduction in leverage during 2020, possibly in response to external factors, followed by incremental increases at the end of the period.

Return on Equity (ROE)

ROE data begins in March 2017 with a value of 32.38%, showing growth over 2017 to a peak of 36.82% in December 2017. From this peak, there is a pronounced decline through 2018 and 2019, falling to a low of 21.03% in December 2020. Despite some variations, this downward trend indicates diminishing returns for equity holders. In 2021, ROE exhibits a modest recovery, increasing from 20.08% in March to 25.49% in December. This pattern closely mirrors the trends observed in ROA but with more pronounced volatility, which aligns with leverage effects amplifying equity returns.

In summary, the company experienced peak profitability in terms of ROA and ROE in late 2017, followed by a gradual decline through 2020, likely influenced by changing operational efficiency and financial structure adjustments. Financial leverage has remained within a relatively narrow band, with some fluctuations possibly aimed at optimizing capital costs. The recent recovery in both ROA and ROE in the latter part of 2021 suggests an improvement in asset utilization and equity returns, which may signal a positive turn in financial performance.

The financial ratios over the analyzed periods reveal several notable trends in operational efficiency, profitability, and leverage.

Net Profit Margin

The net profit margin data commence from March 31, 2017. Starting at 13.46%, the margin experiences a gradual increase, peaking at 15.6% by December 31, 2017. Subsequently, there is a consistent downward trend through 2019 and into 2020, reaching a low around 10.04% in December 2020. From 2021 onwards, the margin stabilizes somewhat, fluctuating narrowly around 10%, suggesting more consistent profitability levels in recent quarters, albeit at a reduced level compared to the 2017 peak.

Asset Turnover

The asset turnover ratio begins from March 31, 2017, recorded at 0.66, remaining relatively stable through the end of 2018. Thereafter, a decline is apparent during 2019, hitting a trough near 0.56 by March 31, 2020. A modest recovery phase follows, with ratios improving gradually into 2021, culminating at 0.62 by December 31, 2021. This pattern suggests a decrease in the efficiency of asset utilization during 2019 and early 2020, with a partial rebound in subsequent periods.

Financial Leverage

Financial leverage shows fluctuations around an average ranging from approximately 3.6 to just over 4. Initially measured at 3.74 in early 2017, it rises gradually to a peak around 4.03 by March 31, 2020, dips to 3.46 in September 2020, and increases again toward the end of 2021, reaching 4.08. These variations imply periods of increasing reliance on debt financing, interspersed with some deleveraging, particularly in 2020, followed by renewed leverage increase by late 2021.

Return on Equity (ROE)

ROE shows a generally downward trajectory over the periods reviewed. Beginning at 32.38% in March 2017, ROE rises briefly to a high of 36.82% by December 2017. Thereafter, a persistent decline is evident, reaching a nadir of approximately 20.08% in March 2021. In the latter part of 2021, a modest recovery appears, with ROE increasing to 25.49% by December 31, 2021. This decline reflects deteriorating overall returns to shareholders, coinciding with the observed decreases in net profit margin and asset turnover, despite relatively high financial leverage.

In summary, the company’s profitability, as indicated by net profit margin and ROE, peaked around late 2017 but has experienced a weakening trend through 2020, with partial stabilization or recovery during 2021. Asset utilization efficiency decreased notably during 2019 and early 2020, followed by improvement thereafter. Financial leverage fluctuated but generally increased over the period, suggesting a mixed strategy regarding debt financing. The interplay between these ratios indicates challenges in maintaining earlier profitability levels while managing asset efficiency and leverage.

Net Profit Margin

The net profit margin was first reported at 13.46% at the end of the first quarter of 2017 and showed an increasing trend leading into the end of 2017, reaching 15.6%. However, from 2018 onwards, there was a gradual decline in margin, dropping to 11.35% by the last quarter of 2019. This downward trend continued through 2020, hitting a low of 10.04% in the final quarter of that year. Slight fluctuations were observed in 2021, with margins stabilizing around 10%, ending the year marginally higher at 10.13%. Overall, the data reflects a weakening profitability margin over the analyzed period, particularly after 2017.

Asset Turnover

Asset turnover started at 0.66 in the first quarter of 2017 and remained relatively steady through the following year with minimal variation, only slightly decreasing to 0.65-0.66. During 2019, a noticeable decline occurred, falling to 0.57 by the year's end. In 2020, turnover stabilized around the mid-0.50 range but experienced a recovery trend in 2021, increasing steadily to 0.62 by year-end. This suggests that the company's efficiency in utilizing assets to generate revenue dipped notably during 2019 and 2020 but showed signs of improvement thereafter.

Return on Assets (ROA)

Return on assets demonstrated a robust performance at the outset, with values rising from 8.93% at Q1 2017 to a peak of 10.17% in Q4 2017. Following this peak, ROA edged downward becoming more pronounced during 2019, where it decreased to 6.47% by the last quarter. The downward trend persisted slightly into 2020, maintaining levels around 6%, and further declined to 5.1% early in 2021. The latter part of 2021 shows a modest recovery, ending at 6.24%. This pattern indicates decreasing efficiency in generating returns from assets after 2017, with some recovery occurring in the final quarters of 2021.