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
KLA Corp., decomposition of ROE
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
- Return on Assets (ROA)
- The Return on Assets exhibited a general upward trend from 2019 to 2022, increasing from 13.05% in 2019 to a peak of 26.37% in 2022. Following this peak, ROA declined in the subsequent years to 24.07% in 2023 and further to 17.9% in 2024. This indicates an initial improvement in asset efficiency and profitability that weakened after reaching the peak.
- Financial Leverage
- Financial leverage remained relatively stable around the 3.0-3.5 range in 2019 through 2021. In 2022, there was a notable spike to 8.99, representing a significant increase in leverage and possibly higher reliance on debt financing. This leveled off in 2023 and 2024, settling at 4.82 and then 4.58 respectively, suggesting partial deleveraging but still higher leverage compared to earlier years.
- Return on Equity (ROE)
- Return on Equity demonstrated strong growth from 44.21% in 2019 to 61.53% in 2021. In 2022, ROE surged dramatically to an exceptionally high level of 237.04%. However, in the following years, it declined significantly to 116.01% in 2023 and 82% in 2024. Despite these declines, ROE remained at high levels compared to the initial years, indicating sustained high returns to shareholders, potentially amplified by changes in leverage or profitability.
- Summary Insights
- The firm showed improvements in asset returns up to 2022, accompanied by a sharp rise in financial leverage during the same year. The extraordinary spike in ROE in 2022 suggests that the company significantly increased equity profitability, likely influenced by the elevated leverage position. Subsequent years show reduced leverage and lower but still elevated returns on equity and assets, indicating some risk moderation while maintaining relatively strong profitability levels.
Three-Component Disaggregation of ROE
KLA Corp., decomposition of ROE
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
- Net Profit Margin
- The net profit margin shows fluctuations over the six-year period. It starts at 25.73% in 2019, declines to 20.96% in 2020, then increases sharply to 30.04% in 2021 and reaches a peak of 36.06% in 2022. After this peak, the margin decreases to 32.27% in 2023 and further down to 28.15% in 2024. This indicates that profitability relative to revenue improved significantly between 2020 and 2022 before tapering off in the last two years.
- Asset Turnover
- The asset turnover ratio demonstrates an overall improving trend from 0.51 in 2019 to a peak of 0.75 in 2023, reflecting enhanced efficiency in using assets to generate sales. However, in 2024, the ratio declines to 0.64, suggesting a decrease in asset utilization efficiency after consistent improvement in previous years.
- Financial Leverage
- Financial leverage remains relatively stable between 2019 and 2021, oscillating around 3.0 to 3.5. There is a drastic and notable spike to 8.99 in 2022, indicating a significant increase in debt or other liabilities relative to equity. This leverage then decreases to 4.82 in 2023 and further to 4.58 in 2024, though it remains above historical levels before 2022. This pattern may indicate an episodic borrowing or leveraging event followed by partial deleveraging.
- Return on Equity (ROE)
- Return on equity exhibits a pronounced anomaly in 2022. From moderate levels around mid-40s and low 60s percentages in 2019 through 2021 (44.21%, 45.65%, and 61.53%, respectively), ROE skyrockets to an extraordinary 237.04% in 2022. It then declines substantially but remains elevated at 116.01% in 2023 and 82.00% in 2024. The spike corresponds with the increased financial leverage seen in 2022, inferring that the company’s equity returns were highly amplified by debt during this period. Although ROE subsides in subsequent years, it stays well above traditional figures, indicating persistent leverage effects or exceptional profitability.
Five-Component Disaggregation of ROE
KLA Corp., decomposition of ROE
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
- Tax Burden
- The tax burden ratio exhibits some fluctuation over the analyzed periods, starting at 0.91 in mid-2019 and experiencing minor variations with a low of 0.87 in mid-2024. The highest value was observed in mid-2022 at 0.95. Overall, the tax burden shows relative stability with a slight downward trend towards the latest period.
- Interest Burden
- The interest burden ratio shows a modest decline from 0.91 in mid-2019 to 0.91 in mid-2024, with intermediate fluctuations. The ratio dipped to a low of 0.89 in 2020, then peaked at 0.96 in 2022 before decreasing again. This indicates minor variability in interest expenses relative to earnings over the years.
- EBIT Margin
- The EBIT margin demonstrates notable volatility. After a decrease from 31.11% in 2019 to 25.47% in 2020, it sharply increased to 36.4% in 2021 and peaked at 39.62% in 2022. Following this peak, the margin slightly declined but remained strong at 35.68% in 2024, indicating improved operational profitability with some recent moderation.
- Asset Turnover
- The asset turnover ratio depicts a clear upward trend from 0.51 in 2019 to 0.75 in 2023, evidencing improved efficiency in generating revenue from assets. However, the ratio declined to 0.64 in 2024, suggesting a recent reduction in asset utilization effectiveness.
- Financial Leverage
- Financial leverage exhibits significant fluctuation, starting at 3.39 in 2019 and peaking sharply at 8.99 in 2022. After this peak, leverage decreased to 4.82 in 2023 and further to 4.58 in 2024. This pattern indicates a period of increased debt or equity use to finance assets during 2022, followed by partial deleveraging in recent years.
- Return on Equity (ROE)
- The ROE presents a highly variable pattern with dramatic increases. Beginning at 44.21% in 2019, it slightly rose to 45.65% in 2020 before surging to 61.53% in 2021. The ratio then escalated to an extraordinary 237.04% in 2022, reflecting exceptional profitability relative to equity, before declining to 116.01% in 2023 and further to 82% in 2024. Despite the decline from the peak, ROE remains substantially above earlier levels, indicating strong overall equity returns.
Two-Component Disaggregation of ROA
KLA Corp., decomposition of ROA
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
- Net Profit Margin
- The net profit margin exhibited fluctuations over the observed period. Initially, it decreased from 25.73% in mid-2019 to 20.96% in mid-2020. Subsequently, it rose significantly, reaching a peak of 36.06% in mid-2022, before experiencing declines in the following years to 32.27% in mid-2023 and further down to 28.15% by mid-2024. This pattern suggests periods of increased profitability efficiency followed by some erosion in margin in the later years.
- Asset Turnover
- Asset turnover demonstrated a general upward trend from 0.51 in mid-2019 to a high of 0.75 in mid-2023, indicating improved efficiency in utilizing assets to generate sales. However, there was a notable decline in the latest period to 0.64 by mid-2024, suggesting a possible reduction in operational efficiency or changes in asset base or sales volume.
- Return on Assets (ROA)
- Return on assets closely mirrors the trends observed in net profit margin and asset turnover. It remained relatively stable in the early years around 13%, then increased sharply to 26.37% in mid-2022, followed by a decrease to 17.9% by mid-2024. This pattern reflects the combined effects of profitability and asset utilization improvements until mid-2022, followed by diminished returns on asset investments in subsequent periods.
Four-Component Disaggregation of ROA
KLA Corp., decomposition of ROA
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
- Tax Burden
- The tax burden ratio has shown moderate fluctuations over the analyzed periods, starting at 0.91 in mid-2019 and peaking at 0.95 in mid-2022. It then declined to 0.87 by mid-2024, indicating a general trend towards a reduced tax impact on earnings in the most recent year.
- Interest Burden
- This ratio exhibited slight variability, declining from 0.91 in 2019 to a low of 0.89 in 2020, then recovering slightly with a peak of 0.96 in 2022. It decreased again afterward, ending at 0.91 by mid-2024, suggesting relatively stable but slightly improving interest expense management over the period.
- EBIT Margin
- The EBIT margin experienced significant changes, with a notable dip to 25.47% in 2020 from 31.11% in 2019, followed by a strong rebound to its highest level of 39.62% in 2022. However, there was a subsequent decline to 35.68% in 2024, indicating some volatility but overall maintaining a relatively high profitability from operations.
- Asset Turnover
- Asset turnover showed a steady increase from 0.51 in 2019 to a peak of 0.75 in 2023, reflecting improved efficiency in generating revenue from assets. The ratio then declined to 0.64 in 2024, suggesting a slight setback in asset utilization in the most recent period.
- Return on Assets (ROA)
- The ROA mirrored the trends in operational performance and asset efficiency, remaining stable around 13% in 2019 and 2020, before increasing sharply to 26.37% in 2022. The ROA decreased afterwards to 17.9% in 2024, indicating a reduction in the overall profitability generated by the company's assets compared to the peak year.
Disaggregation of Net Profit Margin
KLA Corp., decomposition of net profit margin ratio
Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).
- Tax Burden
- The tax burden ratio displayed minor fluctuations over the observed periods, beginning at 0.91 in mid-2019, peaking at 0.95 in mid-2022, and declining to 0.87 by mid-2024. This indicates a slight variability in the effective tax rate, with a recent decreasing trend suggesting potential tax efficiency improvements or changes in tax regulations.
- Interest Burden
- The interest burden ratio showed a generally stable pattern, starting at 0.91 in mid-2019 and slightly decreasing to 0.91 by mid-2024 after a peak of 0.96 in mid-2022. This consistency suggests relatively stable interest expenses in relation to operating income, despite minor volatility during the mid-periods.
- EBIT Margin
- The EBIT margin experienced significant variability, with a notable dip to 25.47% in mid-2020 followed by a sharp increase to 39.62% by mid-2022. Subsequently, it declined to 35.68% in mid-2024. The initial drop likely reflects external challenges around 2020, while the recovery and subsequent moderation indicate improved operational profitability with some recent softening.
- Net Profit Margin
- The net profit margin mirrored the trends observed in EBIT margin, decreasing to 20.96% in mid-2020 before rising to a peak of 36.06% in mid-2022. Afterward, it decreased steadily to 28.15% in mid-2024. This pattern reflects fluctuations in overall profitability, influenced by changes in both operating efficiency and other non-operating factors impacting net income, with a recent downward trend suggesting margin pressures.