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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- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Revenues
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Two-Component Disaggregation of ROE
YUM! Brands Inc., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2016-09-03), 10-Q (reporting date: 2016-06-11), 10-Q (reporting date: 2016-03-19), 10-K (reporting date: 2015-12-26), 10-Q (reporting date: 2015-09-05), 10-Q (reporting date: 2015-06-13), 10-Q (reporting date: 2015-03-21), 10-K (reporting date: 2014-12-27), 10-Q (reporting date: 2014-09-06), 10-Q (reporting date: 2014-06-14), 10-Q (reporting date: 2014-03-22), 10-K (reporting date: 2013-12-28), 10-Q (reporting date: 2013-09-07), 10-Q (reporting date: 2013-06-15), 10-Q (reporting date: 2013-03-23), 10-K (reporting date: 2012-12-29), 10-Q (reporting date: 2012-09-08), 10-Q (reporting date: 2012-06-16), 10-Q (reporting date: 2012-03-24).
The analysis of the financial ratios over the reported periods reveals several noteworthy trends regarding profitability and leverage.
- Return on Assets (ROA)
- The ROA percentage fluctuated moderately throughout the periods, starting around 16.19% and reaching a peak near 18.01% in late 2012. Subsequently, ROA declined to a low of approximately 11.03% in mid-2015 before recovering strongly to about 17.42% by late 2016. This pattern indicates varying efficiency in asset utilization but with a general positive momentum towards the end of the analyzed timeframe.
- Financial Leverage
- The financial leverage ratio showed relative stability in the earlier years, oscillating between approximately 3.66 and 5.39, indicating a moderate level of debt usage. However, from late 2015 onwards, financial leverage increased dramatically, surging to 8.86 and then reaching an exceptionally high value of 52.7 in mid-2016. This sharp rise signals a significant increase in debt or other liabilities relative to equity, which could imply a substantial shift in the company’s capital structure or financial strategy during that period.
- Return on Equity (ROE)
- ROE followed a somewhat similar trajectory to ROA but with much greater volatility and magnitude. It started off very high, above 70% in early 2012, declining to a low near 50.37% by the end of 2013. Afterward, ROE showed fluctuations with values between 50% and nearly 68%, before an extraordinary increase to 141.93% and then to an extremely elevated figure of 847.44% by mid-2016. Such abnormally high ROE values typically reflect the impact of the marked increase in financial leverage, significantly amplifying equity returns under increased risk conditions.
In summary, the data portrays a company that maintained solid asset returns with moderate leverage through the earlier periods but then underwent a substantial increase in financial leverage. This change coincided with a dramatic spike in ROE, suggesting higher financial risk combined with amplified return opportunities. The marked leverage escalation in 2016 warrants further investigation to understand its drivers and sustainability.
Three-Component Disaggregation of ROE
YUM! Brands Inc., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2016-09-03), 10-Q (reporting date: 2016-06-11), 10-Q (reporting date: 2016-03-19), 10-K (reporting date: 2015-12-26), 10-Q (reporting date: 2015-09-05), 10-Q (reporting date: 2015-06-13), 10-Q (reporting date: 2015-03-21), 10-K (reporting date: 2014-12-27), 10-Q (reporting date: 2014-09-06), 10-Q (reporting date: 2014-06-14), 10-Q (reporting date: 2014-03-22), 10-K (reporting date: 2013-12-28), 10-Q (reporting date: 2013-09-07), 10-Q (reporting date: 2013-06-15), 10-Q (reporting date: 2013-03-23), 10-K (reporting date: 2012-12-29), 10-Q (reporting date: 2012-09-08), 10-Q (reporting date: 2012-06-16), 10-Q (reporting date: 2012-03-24).
- Net Profit Margin
- The net profit margin shows a generally declining trend from around 11.7% in early 2012 to a low near 7% by late 2015. However, starting from late 2015, the margin improved significantly, reaching above 12% by the third quarter of 2016. This indicates an initial period of margin compression followed by a strong recovery in profitability.
- Asset Turnover
- Asset turnover remained relatively stable throughout the period, fluctuating near 1.5 times and exhibiting only minor variation. A notable exception is the drop to 1.24 in the third quarter of 2016. The stability implies consistent efficiency in using assets to generate sales, except for the late decline which suggests reduced asset utilization or higher asset base relative to sales in that quarter.
- Financial Leverage
- Financial leverage was moderately stable around 4.0 to 5.3 from 2012 through late 2015 but shows a sharp spike starting in early 2016, peaking drastically at 52.7 in mid-2016 before data becomes unavailable. This sudden increase suggests a significant rise in debt or a reduction in equity, leading to much higher risk exposure in the capital structure during this time frame.
- Return on Equity (ROE)
- ROE initially remained very high, around 70%, with some decline into the 50% range by late 2013 and early 2014. It showed volatility afterward but then surged extraordinarily to 141.9% and an unprecedented 847.4% by mid-2016. This extreme increase is likely influenced by the dramatic rise in financial leverage, as ROE can be highly sensitive to leverage effects, especially in periods of financial structure changes.
- Summary
- The company experienced stable operational efficiency with consistent asset turnover through most periods. Profitability margins declined initially but rebounded in the last observed quarters. The financial structure saw a drastic increase in leverage during 2016, coinciding with a sharp rise in ROE, indicative of higher financial risk. The data suggest a period of strategic or financial restructuring with potential implications for risk and return profiles going forward.
Two-Component Disaggregation of ROA
YUM! Brands Inc., decomposition of ROA (quarterly data)
Based on: 10-Q (reporting date: 2016-09-03), 10-Q (reporting date: 2016-06-11), 10-Q (reporting date: 2016-03-19), 10-K (reporting date: 2015-12-26), 10-Q (reporting date: 2015-09-05), 10-Q (reporting date: 2015-06-13), 10-Q (reporting date: 2015-03-21), 10-K (reporting date: 2014-12-27), 10-Q (reporting date: 2014-09-06), 10-Q (reporting date: 2014-06-14), 10-Q (reporting date: 2014-03-22), 10-K (reporting date: 2013-12-28), 10-Q (reporting date: 2013-09-07), 10-Q (reporting date: 2013-06-15), 10-Q (reporting date: 2013-03-23), 10-K (reporting date: 2012-12-29), 10-Q (reporting date: 2012-09-08), 10-Q (reporting date: 2012-06-16), 10-Q (reporting date: 2012-03-24).
The financial data reveals several notable trends and variations over the analyzed periods concerning profitability and operational efficiency metrics.
- Net Profit Margin
- The net profit margin exhibited a general declining trend from the initial period, starting at 11.69%, decreasing steadily with some fluctuations to reach a low near 7% during mid-2015. From late 2015 onwards, an upward recovery is observed with margins rising again, culminating in a peak of approximately 12.62% by the last quarter. This suggests a period of margin compression followed by improvement, potentially reflecting changes in cost management or pricing strategies.
- Asset Turnover Ratio
- The asset turnover ratio remained relatively stable around 1.5 for most of the timeline, indicating consistent asset utilization efficiency. There was a slight increase observed from 1.39 initially to a peak of about 1.62 in early 2016, showing improved efficiency in generating sales from assets during that time. However, this was followed by a notable decline to 1.24 in the final period, which may suggest a decrease in operational efficiency or increased asset base without proportionate revenue gains towards the end.
- Return on Assets (ROA)
- ROA demonstrated a fluctuating pattern over the periods. It initially increased from 16.19% to a high around 18%, followed by a decline that mirrors the decrease in net profit margin, reaching lows near 11%. The ROA then recovered substantially, peaking again above 17% before another slight decline in the last period. This pattern aligns with the combined effects of changes in profitability and asset utilization, indicating periods of reduced and enhanced overall asset profitability.
In summary, the data reflects a cycle of weakening profitability and asset returns mid-period, followed by a phase of recovery and improved margins and returns, although the final quarter suggests caution due to a downturn in asset turnover. Continuous monitoring of operational efficiency and cost control measures would be advisable to sustain the positive momentum observed in profitability ratios.