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
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
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Two-Component Disaggregation of ROE
O’Reilly Automotive Inc., decomposition of ROE
| ROE | = | ROA | × | Financial Leverage | |
|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Return on Assets (ROA)
- The ROA showed a fluctuating trend over the five-year period. Starting at 14.97% in 2017, it increased to 16.6% in 2018 before declining to 12.98% in 2019. Subsequently, the ROA rose again to 15.11% in 2020 and reached its highest value of 18.47% by the end of 2021. This indicates a general improvement in the efficiency with which the company utilized its assets to generate profits, despite the dip observed in 2019.
- Financial Leverage
- Financial leverage experienced significant growth from 2017 to 2020. The ratio increased from 11.59 in 2017 to 22.57 in 2018, then further to 26.97 in 2019. A substantial jump was recorded in 2020, reaching 82.68, which suggests a marked increase in reliance on debt financing or liabilities relative to equity during this year. The data for 2021 is absent, preventing analysis for that year.
- Return on Equity (ROE)
- The ROE exhibited pronounced volatility and extremely high values over the available period. It started at 173.62% in 2017 and more than doubled to 374.5% in 2018. Although it slightly decreased to 350.09% in 2019, there was an extraordinary increase to 1249.34% in 2020. This dramatic rise indicates significant fluctuations in equity returns, likely influenced by the sharp increase in financial leverage. No data for 2021 is provided, limiting further evaluation.
Three-Component Disaggregation of ROE
O’Reilly Automotive Inc., decomposition of ROE
| ROE | = | Net Profit Margin | × | Asset Turnover | × | Financial Leverage | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Net Profit Margin
- The net profit margin showed a consistent upward trend over the five-year period, increasing from 12.63% in 2017 to 16.24% in 2021. This indicates improved profitability and potentially better cost control or higher revenue generation relative to expenses over time.
- Asset Turnover
- The asset turnover ratio remained stable at 1.19 in both 2017 and 2018, then declined to 0.95 in 2019, signaling a decrease in efficiency in generating sales from assets. However, it showed a recovery trend by increasing to 1.00 in 2020 and further to 1.14 in 2021, suggesting improvements in asset utilization.
- Financial Leverage
- Financial leverage increased sharply from 11.59 in 2017 to a peak of 82.68 in 2020, indicating a substantial rise in the company's use of debt relative to equity. The absence of data beyond 2020 makes it unclear whether this high leverage was maintained or reduced in subsequent periods.
- Return on Equity (ROE)
- ROE demonstrated significant volatility with exceptional growth from 173.62% in 2017 to a peak of 1249.34% in 2020. This extreme increase aligns with the surge in financial leverage, suggesting that the company amplified equity returns primarily through increased leverage. The lack of data for 2021 prevents assessment of whether this trend continued.
Five-Component Disaggregation of ROE
O’Reilly Automotive Inc., decomposition of ROE
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio remained relatively stable over the five-year period, fluctuating slightly between 0.69 and 0.78. After an initial increase from 0.69 in 2017 to 0.78 in 2018, the ratio maintained a steady range around 0.77 to 0.78 through 2021, indicating consistent tax expense levels relative to pre-tax income.
- Interest Burden
- The interest burden ratio displayed minor variations, beginning at 0.95 in 2017, dipping slightly to 0.93 between 2018 and 2020, and rising back to 0.95 by 2021. These values suggest relatively stable interest expenses in relation to EBIT throughout the period.
- EBIT Margin
- The EBIT margin showed a gradual upward trend, starting at 19.26% in 2017 and closing at 21.96% in 2021. A slight dip was observed between 2018 and 2019, but subsequent years exhibited continuous improvement, reaching the highest margin in the latest period. This trend indicates improving operational profitability over time.
- Asset Turnover
- Asset turnover experienced a decline from 1.19 in 2017 and 2018 to 0.95 in 2019, indicating a reduction in efficiency in utilizing assets to generate revenue. However, from 2019 onward, there was a recovery trend with ratios increasing to 1.0 in 2020 and further to 1.14 in 2021, signaling an improving capacity to generate sales from assets.
- Financial Leverage
- Financial leverage demonstrated considerable volatility and overall growth. It began at 11.59 in 2017, doubled to 22.57 in 2018, and increased further to 26.97 in 2019. A sharp spike occurred in 2020, soaring to 82.68, after which data was unavailable for 2021. The significant increase in leverage in 2020 may reflect increased borrowing or other liabilities affecting equity proportion.
- Return on Equity (ROE)
- ROE showed extraordinary and highly variable values over the period. It increased dramatically from 173.62% in 2017 to a peak of 1249.34% in 2020, with intermediate values of 374.5% in 2018 and 350.09% in 2019. No data was available for 2021. This immense fluctuation is likely influenced by the extreme changes in financial leverage, impacting equity returns and potentially indicating elevated financial risk and profit amplification during this period.
Two-Component Disaggregation of ROA
O’Reilly Automotive Inc., decomposition of ROA
| ROA | = | Net Profit Margin | × | Asset Turnover | |
|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | |||
| Dec 31, 2020 | = | × | |||
| Dec 31, 2019 | = | × | |||
| Dec 31, 2018 | = | × | |||
| Dec 31, 2017 | = | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Net Profit Margin
- The net profit margin demonstrates a generally upward trend over the five-year period. Starting at 12.63% in 2017, it increased steadily each year, reaching 16.24% in 2021. The margin rose from 12.63% to 13.89% in 2018 and showed a slight decline to 13.7% in 2019 before continuing its upward trajectory in 2020 and 2021. This improvement suggests enhanced profitability and cost management over time.
- Asset Turnover
- Asset turnover exhibited some fluctuations during the period under review. The ratio was stable at 1.19 in both 2017 and 2018 but declined significantly to 0.95 in 2019. A gradual recovery followed, with the ratio increasing to 1.0 in 2020 and further to 1.14 by 2021. Despite the dip, the ratio in 2021 remained slightly below the 2017-2018 levels, indicating a partial restoration in the efficiency of asset use to generate sales.
- Return on Assets (ROA)
- Return on assets displayed variability across the years. ROA increased from 14.97% in 2017 to 16.6% in 2018, then declined to 12.98% in 2019. Subsequently, it improved to 15.11% in 2020 and reached a peak of 18.47% in 2021. The lowest point in 2019 coincides with the lowest asset turnover ratio observed, which may have contributed to diminished asset efficiency. The recovery and growth in ROA towards 2021 indicate improved overall profitability relative to asset base.
- Overall Observations
- The combined analysis of profitability and efficiency ratios suggests that the company managed to enhance its profit margins consistently, reflecting stronger control over costs or improved pricing power. Despite a notable dip in asset turnover in 2019, there was a gradual recovery, which, along with increasing net profit margins, contributed to improving ROA in recent years. By 2021, the company achieved its highest net profit margin and ROA within the period, pointing to improved operational performance and asset utilization efficiency over the long term.
Four-Component Disaggregation of ROA
O’Reilly Automotive Inc., decomposition of ROA
| ROA | = | Tax Burden | × | Interest Burden | × | EBIT Margin | × | Asset Turnover | |
|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | × | |||||
| Dec 31, 2020 | = | × | × | × | |||||
| Dec 31, 2019 | = | × | × | × | |||||
| Dec 31, 2018 | = | × | × | × | |||||
| Dec 31, 2017 | = | × | × | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden ratio shows a general upward trend from 0.69 in 2017 to 0.78 in 2018, maintaining at 0.78 through 2019 and 2021, with a slight dip to 0.77 in 2020. This indicates relative stability with a marginal increase in the proportion of earnings after tax over the period.
- Interest Burden
- The interest burden ratio remains consistently high and stable around 0.93 to 0.95 throughout the analyzed years, reflecting a steady interest expense relative to earnings before interest and taxes, suggesting effective management of interest costs.
- EBIT Margin
- The EBIT margin exhibits a generally positive trend, starting at 19.26% in 2017, dipping slightly to about 19.02% in 2019, then increasing steadily to 20.92% in 2020 and reaching 21.96% in 2021, indicating improving operational profitability and efficiency over time.
- Asset Turnover
- Asset turnover ratio remained stable at 1.19 during 2017 and 2018, but declined sharply to 0.95 in 2019. Following that, there is a gradual recovery to 1.00 in 2020 and further improvement to 1.14 in 2021. This pattern highlights a temporary reduction in asset utilization efficiency in 2019, with ongoing efforts to enhance asset productivity thereafter.
- Return on Assets (ROA)
- ROA fluctuates over the period, starting at 14.97% in 2017, increasing to 16.60% in 2018, then dropping significantly to 12.98% in 2019. Subsequently, ROA rises to 15.11% in 2020 and reaches a peak at 18.47% in 2021. This variability largely mirrors changes in EBIT margin and asset turnover, with the overall trend suggesting improved asset profitability, especially in the later years.
Disaggregation of Net Profit Margin
O’Reilly Automotive Inc., decomposition of net profit margin ratio
| Net Profit Margin | = | Tax Burden | × | Interest Burden | × | EBIT Margin | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
- Tax Burden
- The tax burden exhibited an upward trend from 0.69 in 2017 to approximately 0.78 in subsequent years, stabilizing at that level through 2021. This indicates an increase in the proportion of pre-tax income paid as tax, with the ratio maintaining a consistent level after the initial rise.
- Interest Burden
- The interest burden ratio remained relatively stable across the periods, fluctuating slightly between 0.93 and 0.95. This stability suggests consistent management of interest expenses relative to earnings before interest and taxes.
- EBIT Margin
- The EBIT margin displayed a gradual increase over the five-year period, starting at 19.26% in 2017 and rising to 21.96% in 2021. Notably, the margin experienced a more pronounced improvement from 2019 onwards, indicating enhanced operational efficiency or improved revenue generation relative to EBIT.
- Net Profit Margin
- The net profit margin showed a positive upward trend, increasing from 12.63% in 2017 to 16.24% in 2021. The steady growth suggests improved profitability after accounting for all expenses, including taxes and interest, reflecting effective cost control and margin expansion.