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
Zoetis Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2023 | = | × | |||
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Return on Assets (ROA)
- The Return on Assets demonstrates an overall upward trend over the five-year period. Starting at 12.99% in 2019, it slightly decreased to 12.04% in 2020, followed by a notable increase reaching 14.65% in 2021. The ROA remained relatively stable in 2022 at 14.16%, before rising more substantially to 16.41% in 2023. This indicates an improving efficiency in utilizing assets to generate profits over time.
- Financial Leverage
- The Financial Leverage ratio exhibited a consistent decline from 4.26 in 2019 to 2.86 in 2023. This steady decrease suggests a gradual reduction in the company’s use of debt relative to equity. A lower financial leverage ratio typically indicates a more conservative capital structure and potentially reduced financial risk.
- Return on Equity (ROE)
- The Return on Equity declined markedly from 55.39% in 2019 to 43.46% in 2020. Subsequently, it exhibited a moderate recovery, increasing to 44.84% in 2021 and further to 47.99% in 2022. However, this was followed by a slight decrease to 46.91% in 2023. Overall, the ROE remains high, reflecting strong profitability for equity holders despite fluctuations during the period.
Three-Component Disaggregation of ROE
Zoetis Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2023 | = | × | × | ||||
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Net Profit Margin
- The net profit margin shows a consistent upward trend over the five-year period. It increased from 23.96% in 2019 to 27.43% in 2023, reflecting improved profitability. The margin rose notably between 2020 and 2021, and maintained a steady increase thereafter, suggesting effective cost management or higher revenue quality.
- Asset Turnover
- The asset turnover ratio exhibits some fluctuation but an overall upward movement from 0.54 in 2019 to 0.60 in 2023. After declining to 0.49 in 2020, it rebounded in 2021 and remained relatively stable before gaining further in 2023. This pattern indicates enhanced efficiency in utilizing assets to generate sales in recent years.
- Financial Leverage
- Financial leverage has steadily decreased from 4.26 in 2019 to 2.86 in 2023. This significant reduction suggests a deliberate effort to lower reliance on debt or external financing. The consistent decline may reflect a strategy towards a more conservative capital structure, reducing financial risk over time.
- Return on Equity (ROE)
- Return on equity declined notably from 55.39% in 2019 to 43.46% in 2020, followed by a gradual recovery, reaching 46.91% in 2023. Despite this recovery, the ROE remains below the initial 2019 level. The decline corresponds with the reduced financial leverage, indicating that lower leverage has moderated equity returns, although operational efficiency improvements may have supported partial recovery.
Five-Component Disaggregation of ROE
Zoetis Inc., decomposition of ROE
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Tax Burden
- The tax burden ratio remained relatively stable over the five-year period, holding steady around 0.8 to 0.83. This indicates consistent tax efficiency, with only a slight decline from 0.83 in 2019 to 0.8 in 2022 and 2023.
- Interest Burden
- The interest burden ratio showed a moderate increase, rising from 0.89 in 2019 to 0.92 by 2021 and maintaining that level through 2023. This suggests a slight improvement in operating earnings before interest expenses relative to earnings before taxes.
- EBIT Margin
- The EBIT margin displayed a steady upward trend, increasing annually from 32.33% in 2019 to 37.21% in 2023. This gradual increase reflects improving operating profitability over the period.
- Asset Turnover
- The asset turnover ratio fluctuated slightly year to year, starting at 0.54 in 2019, dipping to 0.49 in 2020, then recovering and reaching 0.6 in 2023. The final value surpasses the initial, indicating enhanced efficiency in using assets to generate sales.
- Financial Leverage
- Financial leverage experienced a notable downward trend from 4.26 in 2019 to 2.86 in 2023. This significant reduction suggests the company has decreased reliance on debt financing relative to equity over time.
- Return on Equity (ROE)
- Return on equity declined sharply from 55.39% in 2019 to 43.46% in 2020, then recovered moderately to around 47% in subsequent years. Despite the recovery, the ROE in 2023 remains below the 2019 peak. This movement could reflect the combined effects of changing leverage, profitability, and asset management efficiency.
Two-Component Disaggregation of ROA
Zoetis Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2023 | = | × | |||
| Dec 31, 2022 | = | × | |||
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Net Profit Margin
- The net profit margin demonstrated a consistent upward trend over the period analyzed. Starting at 23.96% in 2019, it increased gradually each year, reaching 27.43% by 2023. This indicates improving profitability and greater efficiency in managing costs relative to revenue.
- Asset Turnover
- Asset turnover exhibited minor fluctuations but showed an overall positive trend. It began at 0.54 in 2019, dipped to 0.49 in 2020, then gradually improved to 0.60 by 2023. The increase in asset turnover suggests enhanced effectiveness in utilizing assets to generate sales.
- Return on Assets (ROA)
- Return on assets followed a pattern similar to net profit margin, with a decline from 12.99% in 2019 to 12.04% in 2020, followed by steady improvement to 16.41% in 2023. This reflects an increasing ability to convert assets into net earnings over the period.
Four-Component Disaggregation of ROA
Zoetis Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2023 | = | × | × | × | |||||
| Dec 31, 2022 | = | × | × | × | |||||
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Tax Burden
- The tax burden ratio shows a slight decline from 0.83 in 2019 to 0.80 in 2022 and 2023, indicating a marginal decrease in the proportion of earnings retained after taxes over the period, which may reflect changes in tax expenses or tax planning strategies.
- Interest Burden
- The interest burden ratio has steadily increased from 0.89 in 2019 to 0.92 in 2021 and has remained stable at 0.92 through 2022 and 2023. This trend suggests the company has been improving its ability to cover interest expenses, indicating better management of financial costs or reduced debt expense impact.
- EBIT Margin
- The EBIT margin has exhibited consistent growth, rising from 32.33% in 2019 to 37.21% in 2023. This improvement reflects enhanced operational efficiency and profitability before interest and taxes, signaling stronger core earnings over the five-year span.
- Asset Turnover
- Asset turnover fluctuated during the period, decreasing from 0.54 in 2019 to 0.49 in 2020, then rising to 0.56 in 2021, slightly dipping to 0.54 in 2022, and finally increasing to 0.60 in 2023. The overall trend implies variable but ultimately increasing efficiency in using assets to generate revenue.
- Return on Assets (ROA)
- Return on assets experienced some volatility but generally trended upward, starting at 12.99% in 2019, dipping to 12.04% in 2020, then rising sharply to 14.65% in 2021, slightly falling to 14.16% in 2022, and reaching a peak of 16.41% in 2023. This positive trajectory reflects overall improvement in the company’s ability to convert assets into net income.
Disaggregation of Net Profit Margin
Zoetis Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2023 | = | × | × | ||||
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
- Tax Burden
- The tax burden ratio exhibits a slight but consistent decline over the five-year period, starting at 0.83 in 2019 and decreasing to 0.80 in both 2022 and 2023. This trend indicates a marginal reduction in the proportion of earnings consumed by taxes.
- Interest Burden
- The interest burden ratio shows a gradual increase from 0.89 in 2019 to 0.92 in 2021, maintaining this level through 2023. This suggests a relatively stable or slightly increased proportion of earnings retained after interest expenses.
- EBIT Margin
- The EBIT margin reveals a steady upward trend over the examined years, rising from 32.33% in 2019 to 37.21% in 2023. This improvement signifies enhanced operational efficiency and profitability before interest and taxes.
- Net Profit Margin
- The net profit margin similarly increases consistently, advancing from 23.96% in 2019 to 27.43% in 2023. The trend demonstrates improved bottom-line profitability, reflecting effective cost management and revenue growth.