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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- Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Net Profit Margin since 2012
- Return on Assets (ROA) since 2012
- Price to Operating Profit (P/OP) since 2012
- Analysis of Debt
- Aggregate Accruals
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Two-Component Disaggregation of ROE
Kraft Foods Group Inc., decomposition of ROE
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Return on Assets (ROA)
- The ROA shows a fluctuating trend over the three years. It increased significantly from 7.04% in 2012 to 11.73% in 2013, indicating improved asset efficiency. However, in 2014, it declined sharply to 4.55%, suggesting a reduction in profitability generated from the company's assets during that year.
- Financial Leverage
- Financial leverage decreased from 6.53 in 2012 to 4.46 in 2013, implying a reduction in the use of debt relative to equity. In 2014, leverage rose again to 5.26, indicating a moderate increase in debt usage after the prior year's decrease.
- Return on Equity (ROE)
- ROE followed a pattern similar to ROA. It increased markedly from 45.97% in 2012 to 52.34% in 2013, reflecting strong profitability for shareholders. The subsequent decline to 23.89% in 2014 highlights a significant drop in shareholder returns in that period, nearly halving compared to the previous year.
- Overall Insights
- The analysis reveals that 2013 was a peak performance year with improvements in profitability and reduced financial leverage. However, 2014 shows a reversal, with both ROA and ROE declining considerably and financial leverage increasing. This suggests that the company faced challenges affecting profitability while simultaneously increasing debt reliance. Such trends could signal heightened financial risk and decreasing operational efficiency in the latest period.
Three-Component Disaggregation of ROE
Kraft Foods Group Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 27, 2014 | = | × | × | ||||
| Dec 28, 2013 | = | × | × | ||||
| Dec 29, 2012 | = | × | × |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Net Profit Margin
- The net profit margin exhibits significant fluctuation over the three-year period. It increased markedly from 8.95% in 2012 to a peak of 14.9% in 2013, indicating improved profitability during that year. However, in 2014, the margin declined sharply to 5.73%, suggesting a substantial reduction in profitability by the end of the period.
- Asset Turnover
- The asset turnover ratio remains stable across all three years, consistently recorded at 0.79. This stability indicates consistent efficiency in utilizing assets to generate sales without significant improvement or deterioration.
- Financial Leverage
- Financial leverage shows variability, starting at a high level of 6.53 in 2012, declining notably to 4.46 in 2013, and then increasing again to 5.26 in 2014. This variation suggests changes in the company's use of debt relative to equity, with a reduction in leverage during 2013 followed by a partial rebound in 2014.
- Return on Equity (ROE)
- ROE exhibits a strong upward movement from 45.97% in 2012 to a peak of 52.34% in 2013, reflecting enhanced profitability and efficient equity utilization in that year. However, 2014 shows a significant decrease to 23.89%, indicating a considerable decline in the company's ability to generate returns on shareholder equity.
Five-Component Disaggregation of ROE
Kraft Foods Group Inc., decomposition of ROE
| ROE | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 27, 2014 | = | × | × | × | × | ||||||
| Dec 28, 2013 | = | × | × | × | × | ||||||
| Dec 29, 2012 | = | × | × | × | × |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Tax Burden
- The tax burden ratio decreased slightly from 0.67 in 2012 to 0.66 in 2013, then increased notably to 0.74 in 2014. This indicates a higher proportion of pre-tax income retained after taxes in 2012 and 2013 compared to 2014, where tax expenses reduced retained earnings more significantly.
- Interest Burden
- The interest burden ratio showed a gradual decline over the three-year period, from 0.90 in 2012 to 0.89 in 2013, and further down to 0.74 in 2014. This suggests increasing interest expenses relative to EBIT, potentially impacting net income negatively by 2014.
- EBIT Margin
- The EBIT margin experienced a sharp increase from 14.78% in 2012 to 25.20% in 2013, followed by a substantial decline to 10.38% in 2014. This pattern reflects a peak in operational profitability in 2013, but a significant reduction in profitability the next year.
- Asset Turnover
- The asset turnover ratio remained stable at 0.79 throughout the three years, indicating consistent efficiency in using assets to generate sales during the observed period.
- Financial Leverage
- Financial leverage decreased markedly from 6.53 in 2012 to 4.46 in 2013, before increasing again to 5.26 in 2014. This indicates a reduction in the company’s reliance on debt relative to equity in 2013, with a moderate rebound in leverage levels in 2014.
- Return on Equity (ROE)
- Return on equity followed a rising trend from 45.97% in 2012 to a peak of 52.34% in 2013, then declined sharply to 23.89% in 2014. The pattern mirrors changes in profitability and leverage, with highest shareholder returns in 2013 and a significant drop in 2014.
Two-Component Disaggregation of ROA
Kraft Foods Group Inc., decomposition of ROA
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Net Profit Margin
- The net profit margin experienced a notable increase from 8.95% in 2012 to 14.9% in 2013, indicating a significant improvement in profitability during this period. However, in 2014, the margin declined sharply to 5.73%, suggesting reduced profitability compared to the previous year and below the 2012 level.
- Asset Turnover
- The asset turnover ratio remained constant at 0.79 throughout the three-year period, indicating stable efficiency in using assets to generate sales. This consistency suggests that the company's ability to leverage its assets did not change significantly.
- Return on Assets (ROA)
- Return on assets followed a trend similar to the net profit margin. It increased from 7.04% in 2012 to 11.73% in 2013, reflecting improved overall profitability on asset investments. Nevertheless, in 2014 ROA decreased substantially to 4.55%, demonstrating a decline in the effectiveness of asset utilization to generate profit during that year.
Four-Component Disaggregation of ROA
Kraft Foods Group Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 27, 2014 | = | × | × | × | |||||
| Dec 28, 2013 | = | × | × | × | |||||
| Dec 29, 2012 | = | × | × | × |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Tax Burden
- The tax burden ratio remained relatively stable between 2012 and 2013, with a slight decrease from 0.67 to 0.66, indicating a marginal improvement in tax efficiency. However, in 2014, the ratio increased to 0.74, suggesting a higher proportion of earnings being paid as taxes during that year.
- Interest Burden
- The interest burden ratio showed a declining trend over the three years, starting at 0.90 in 2012 and slightly decreasing to 0.89 in 2013 before a more notable decline to 0.74 in 2014. This pattern indicates increasing interest expenses relative to earnings before interest and taxes (EBIT), which may have exerted downward pressure on profitability in the later period.
- EBIT Margin
- The EBIT margin experienced significant volatility. It improved considerably from 14.78% in 2012 to a peak of 25.2% in 2013, indicating enhanced operational efficiency or favorable pricing conditions. However, this improvement was not sustained as the margin sharply declined to 10.38% in 2014, suggesting increased costs or reduced revenue efficiency in that final year.
- Asset Turnover
- Asset turnover remained constant at 0.79 throughout the entire three-year period. This consistency suggests stable efficiency in utilizing assets to generate sales, with no discernible improvement or deterioration over the observed timeframe.
- Return on Assets (ROA)
- The return on assets followed a pattern similar to the EBIT margin. It increased markedly from 7.04% in 2012 to 11.73% in 2013, reflecting improved overall profitability relative to assets. Subsequently, ROA declined significantly to 4.55% in 2014, indicating a reduced ability to convert asset investments into net income during that year.
Disaggregation of Net Profit Margin
Kraft Foods Group Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 27, 2014 | = | × | × | ||||
| Dec 28, 2013 | = | × | × | ||||
| Dec 29, 2012 | = | × | × |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Tax Burden
- The tax burden ratio showed a slight decline from 0.67 in 2012 to 0.66 in 2013, followed by a notable increase to 0.74 in 2014. This indicates a rising proportion of earnings was paid in taxes in 2014 compared to previous years.
- Interest Burden
- The interest burden ratio decreased steadily over the three-year period, from 0.90 in 2012 to 0.89 in 2013, and then more significantly down to 0.74 in 2014. This trend suggests a growing impact of interest expenses on earnings before taxes during this time frame.
- EBIT Margin
- The EBIT margin exhibited considerable volatility, increasing markedly from 14.78% in 2012 to 25.2% in 2013, before sharply declining to 10.38% in 2014. This fluctuation reflects significant changes in operating profitability within the period analyzed.
- Net Profit Margin
- The net profit margin mirrored the pattern of the EBIT margin, with an increase from 8.95% in 2012 to 14.9% in 2013, followed by a decline to 5.73% in 2014. The decreasing profit margin in the final year indicates reduced overall profitability, likely influenced by the higher tax and interest burdens observed.