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.
Two-Component Disaggregation of ROE
First Solar 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).
- Return on Assets (ROA)
- ROA experienced a negative value of -1.53% in 2019, followed by a significant improvement in 2020 and 2021, reaching 5.6% and 6.32%, respectively. However, in 2022, ROA declined back into negative territory at -0.54%, before recovering strongly to 8.02% in 2023. This indicates volatility in asset profitability with a notable rebound at the end of the period.
- Financial Leverage
- Financial leverage ratio decreased steadily from 1.47 in 2019 to 1.24 in 2021, suggesting a gradual reduction in reliance on debt or external financing. However, from 2021 onward, the leverage ratio increased again, reaching 1.41 in 2022 and 1.55 in 2023, implying a return to higher leverage levels over the latter years.
- Return on Equity (ROE)
- ROE followed a similar pattern to ROA, starting negative at -2.26% in 2019 but recovering significantly to 7.22% in 2020 and 7.86% in 2021. A sharp decline occurred in 2022 with ROE turning negative at -0.76%, followed by a strong rebound to 12.42% in 2023. This pattern reflects fluctuating equity profitability with substantial improvement by the end of the observed period.
Three-Component Disaggregation of ROE
First Solar 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).
- Net Profit Margin
- The net profit margin demonstrates significant fluctuations over the five-year period. The margin was negative in 2019 at -3.75%, improved markedly to a peak of 16.03% in 2021, followed by a sharp decline to -1.69% in 2022. In 2023, the margin rebounded impressively to 25.03%, indicating a strong recovery and improved profitability in the most recent period.
- Asset Turnover
- Asset turnover shows a slight downward trend in efficiency from 2019 through 2023. Starting at 0.41 in 2019, the ratio decreased to 0.38 in 2020 and stabilized around 0.39 and then 0.32 during 2021 to 2023. This trend suggests a gradual reduction in the company's ability to generate revenue from its assets, with asset utilization becoming less effective in the latter years.
- Financial Leverage
- Financial leverage experienced a decline from 1.47 in 2019 to 1.24 in 2021, indicating reduced reliance on debt in the early part of the period. However, leverage increased again to 1.41 in 2022 and further to 1.55 in 2023. This upward trend in leverage suggests the company increased its use of debt or other liabilities relative to equity in recent years, which could affect financial risk profiles.
- Return on Equity (ROE)
- Return on equity aligns somewhat with the net profit margin trend, presenting volatility across the years. The ROE was negative at -2.26% in 2019, rising to 7.86% by 2021, before dipping to -0.76% in 2022. By 2023, ROE increased substantially to 12.42%, illustrating improved profitability and more effective use of shareholders' equity.
- Overall Insights
- The financial indicators reveal a period of volatility with notable recovery in recent years. Profitability metrics (net profit margin and ROE) experienced sharp downturns in 2019 and 2022 but showed strong rebounds in 2020, 2021, and especially 2023. Asset turnover declined gradually, hinting at less efficient asset usage, while financial leverage decreased initially but escalated from 2021 onward, implying a shift toward increased debt financing. The combination of improved profitability alongside higher leverage suggests the company undertook greater financial risk but was able to generate satisfactory returns on equity by the end of the period.
Five-Component Disaggregation of ROE
First Solar 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 reveals significant fluctuations across the periods. Starting with a moderate level at 1.37 in 2020, it dropped sharply to 0.82 in 2021, experienced a substantial negative swing to -5.14 in 2022, and then returned closer to unity at 0.93 in 2023. These swings suggest irregular tax impacts or one-time tax-related events affecting profitability in certain years.
- Interest Burden
- This ratio remained relatively stable, with minor variation. It was 0.92 in 2020, increased slightly to 0.98 in 2021, declined notably to 0.41 in 2022, and then almost fully recovered to 0.99 in 2023. The significant dip in 2022 indicates a higher interest expense burden adversely impacting earnings before taxes during that year.
- EBIT Margin
- The EBIT margin showed considerable variability. It moved from a negative margin of -3.05% in 2019 to a strong positive margin of 11.62% in 2020 and further improved to 20.02% in 2021. However, it dropped sharply to a low 0.79% in 2022 before rebounding significantly to 27.25% in 2023. This pattern indicates fluctuating operational profitability with a marked recovery in the latest year.
- Asset Turnover
- The asset turnover ratio slowly declined from 0.41 in 2019 to 0.38 in 2020 and remained relatively flat near 0.39 and 0.32 in 2021 and 2022 respectively, holding steady at 0.32 in 2023. This trend suggests a slight reduction in the efficiency of asset utilization over time.
- Financial Leverage
- Financial leverage started at 1.47 in 2019, decreased progressively to 1.24 by 2021, then increased again to 1.41 in 2022 and further to 1.55 in 2023. The upward trend in recent years indicates a higher reliance on debt or other liabilities relative to equity.
- Return on Equity (ROE)
- ROE exhibited notable fluctuations. Starting negative at -2.26% in 2019, it rose to 7.22% in 2020 and marginally improved to 7.86% in 2021. A contraction occurred in 2022 with ROE turning negative at -0.76%, followed by a strong recovery to 12.42% in 2023. This pattern reflects variations in profitability and chargeable leverage affecting shareholders' returns.
Two-Component Disaggregation of ROA
First Solar Inc., decomposition of ROA
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 exhibits notable fluctuations during the analyzed periods. Starting with a negative margin of -3.75% in 2019, it improved substantially to 14.69% in 2020 and further increased slightly to 16.03% in 2021. However, the margin declined sharply to -1.69% in 2022 before rebounding significantly to 25.03% in 2023. This pattern indicates variable profitability with periods of both strong gains and downturns.
- Asset Turnover
- The asset turnover ratio shows a generally declining trend over the years. Beginning at 0.41 in 2019, it decreased marginally to 0.38 in 2020 and rose slightly to 0.39 in 2021. Subsequently, it declined more notably to 0.32 in 2022 and remained steady at 0.32 in 2023. This suggests a reduced efficiency in utilizing assets to generate revenue during the latter years.
- Return on Assets (ROA)
- The return on assets mirrored movements in profitability but with a slightly smoother trend. After a negative return of -1.53% in 2019, ROA improved to 5.6% in 2020 and 6.32% in 2021. It then fell below zero to -0.54% in 2022, followed by a recovery to 8.02% in 2023. These variations align broadly with the profit margin changes, indicating fluctuating returns generated from the company's asset base.
Four-Component Disaggregation of ROA
First Solar Inc., decomposition of ROA
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 considerable volatility over the observed periods. It increased from 1.37 in 2020 to 0.82 in 2021, then sharply declined to -5.14 in 2022, before slightly recovering to 0.93 in 2023. This suggests significant fluctuations in tax expenses relative to pre-tax income, with an unusual negative value in 2022 indicating possible tax credits or losses.
- Interest Burden
- The interest burden ratio remained relatively stable, hovering close to 1.00 across most years with a slight dip to 0.41 in 2022. This suggests generally consistent interest expenses in relation to EBIT, except for a marked increase in interest impact during 2022.
- EBIT Margin
- EBIT margin demonstrated a positive growth trend from -3.05% in 2019 to 27.25% in 2023, despite a notable drop to 0.79% in 2022. This indicates improving operational profitability over the period with a temporary operational challenge in 2022 that significantly compressed earnings before interest and taxes.
- Asset Turnover
- Asset turnover ratio exhibited a gradual decline, from 0.41 in 2019 to 0.32 in both 2022 and 2023. This decline indicates decreasing efficiency in generating sales from assets, suggesting that asset base growth may have outpaced revenue growth or utilization efficiency decreased.
- Return on Assets (ROA)
- ROA improved from a negative position of -1.53% in 2019 to 8.02% in 2023, with intermittent fluctuations including a decline to -0.54% in 2022. The overall upward trend reflects enhanced profitability relative to total asset base, despite the effect of operational and tax anomalies in 2022.
Disaggregation of Net Profit Margin
First Solar Inc., decomposition of net profit margin ratio
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 significant volatility over the observed periods. Starting with a missing value in 2019, it rises to 1.37 in 2020, then sharply declines to 0.82 in 2021. A substantial negative value of -5.14 is observed in 2022, indicating an unusual tax situation or adjustment, followed by a recovery to 0.93 in 2023. Overall, the tax burden appears unstable with potential implications on net profitability.
- Interest Burden
- The interest burden ratio remains relatively stable throughout the years. After starting from a missing value in 2019, it maintains a high level near or above 0.90 from 2020 to 2023, with the exception of a notable dip to 0.41 in 2022. This dip may indicate increased interest expenses or a lower operating income in that year but rebounds strongly in 2023 to 0.99. The general trend suggests manageable interest obligations with a brief period of higher impact.
- EBIT Margin
- There is a marked improvement in the EBIT margin from a negative -3.05% in 2019 to a robust 20.02% in 2021. This peak is followed by a significant decline to 0.79% in 2022, before rising again to an impressive 27.25% in 2023. The volatility indicates fluctuating operating profitability, with 2022 representing a challenging year possibly due to operational or market conditions, while other years show strong earnings before interest and taxes.
- Net Profit Margin
- The net profit margin follows a similar pattern to the EBIT margin, improving from a negative -3.75% in 2019 to positive highs of 14.69% in 2020 and 16.03% in 2021. A decline to -1.69% in 2022 reflects a net loss or reduced profitability during that year. The margin then recovers substantially to 25.03% in 2023. The trend reflects overall profitability improvements with a notable setback in 2022, which aligns with patterns seen in other profitability measures.