DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
Quarterly Data
Decomposing ROE involves expressing net income divided by shareholders’ equity as the product of component ratios.
Two-Component Disaggregation of ROE
Apache Corp., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2016-06-30), 10-Q (reporting date: 2016-03-31), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-09-30), 10-Q (reporting date: 2015-06-30), 10-Q (reporting date: 2015-03-31), 10-K (reporting date: 2014-12-31), 10-Q (reporting date: 2014-09-30), 10-Q (reporting date: 2014-06-30), 10-Q (reporting date: 2014-03-31), 10-K (reporting date: 2013-12-31), 10-Q (reporting date: 2013-09-30), 10-Q (reporting date: 2013-06-30), 10-Q (reporting date: 2013-03-31), 10-K (reporting date: 2012-12-31), 10-Q (reporting date: 2012-09-30), 10-Q (reporting date: 2012-06-30), 10-Q (reporting date: 2012-03-31).
- Return on Assets (ROA)
- The ROA exhibits a downward trend over the analyzed period. It starts at a relatively strong level near 8% in early 2012, then declines steadily through 2013 and 2014, turning negative by the third quarter of 2014. The decline accelerates significantly in 2015 and early 2016, reaching deeply negative values approaching -122.7% in late 2015 before slightly recovering to still markedly negative levels around -55.38% in mid-2016. This pattern indicates deteriorating asset profitability, with the company failing to generate positive returns on its asset base for a sustained period starting in late 2014.
- Financial Leverage
- Financial leverage shows relative stability between 2012 and 2014, fluctuating modestly around ratios of approximately 1.8 to 2.2. However, a sharp increase occurs in late 2015, with leverage peaking at 7.34, indicating a substantial rise in the use of debt relative to equity or assets during this period. This spike is followed by a decline to ratios still elevated above 3.3 in 2016, remaining significantly higher than earlier years. This trend suggests a considerable increase in the company’s financial risk and dependence on borrowed capital, particularly from late 2015 onwards.
- Return on Equity (ROE)
- ROE trends largely mirror those seen in ROA but with greater volatility and magnitude. Starting at 14.29% in early 2012, the metric declines steadily through 2013 and 2014, turning negative by mid-2014. The decline intensifies sharply throughout 2015, reaching extreme negative values exceeding -900% at one point, reflecting severe losses or equity erosion. Although somewhat less severe in 2016, ROE remains deeply negative, indicating persistent challenges in delivering shareholder returns. The amplified negative values relative to ROA underscore the impact of elevated financial leverage exacerbating equity returns.
- Overall Analysis
- The combined trends in profitability ratios and financial leverage depict a period of increasing financial distress. The consistent decline and eventual negative returns on assets and equity suggest operational or market difficulties leading to substantial losses. The marked increase in financial leverage during late 2015 appears to correlate with intensified negative returns, implying that greater debt levels contributed to amplifying equity losses. The partial recovery in leverage ratios in 2016 does not correspond to improved profitability, which remains negative, signaling ongoing financial and operational challenges that could impact the company's sustainability and investor confidence.
Three-Component Disaggregation of ROE
Apache Corp., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2016-06-30), 10-Q (reporting date: 2016-03-31), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-09-30), 10-Q (reporting date: 2015-06-30), 10-Q (reporting date: 2015-03-31), 10-K (reporting date: 2014-12-31), 10-Q (reporting date: 2014-09-30), 10-Q (reporting date: 2014-06-30), 10-Q (reporting date: 2014-03-31), 10-K (reporting date: 2013-12-31), 10-Q (reporting date: 2013-09-30), 10-Q (reporting date: 2013-06-30), 10-Q (reporting date: 2013-03-31), 10-K (reporting date: 2012-12-31), 10-Q (reporting date: 2012-09-30), 10-Q (reporting date: 2012-06-30), 10-Q (reporting date: 2012-03-31).
- Net Profit Margin
- The net profit margin exhibits a clear declining trend over the periods analyzed. Initially, it shows positive values starting at 24.42% and gradually decreases to 11.01% by March 31, 2014. Subsequently, a sharp deterioration occurs, with margins dropping into negative territory from June 30, 2014 onward, reaching a significant low of -362.20% by December 31, 2015 before a slight recovery to -256.06% by June 30, 2016. This pattern indicates increasing profitability challenges and potential operational or market difficulties affecting earnings relative to revenue.
- Asset Turnover
- Asset turnover remains relatively stable with slight fluctuations throughout the observed timeline. Starting at 0.33 in March 2012, it experiences a modest decline to 0.24 by September 2014, followed by a brief improvement peaking at 0.34 in March 2016, before declining again to 0.22 by June 2016. The generally low ratio reflects modest efficiency in generating sales from the company's asset base, with no sustained improvement trend evident.
- Financial Leverage
- Financial leverage shows a gradual increase from 1.79 in March 2012 to 2.29 by June 2015, indicating a moderate rise in the use of debt relative to equity. A pronounced spike occurs in December 2015, with leverage reaching 7.34, suggesting a major increase in financial risk or significant borrowing during that period. Thereafter, leverage decreases but remains elevated around 3.3 to 3.4 in mid-2016, signaling sustained higher leverage compared to earlier periods.
- Return on Equity (ROE)
- Return on equity follows a trajectory similar to the net profit margin, displaying decreasing profitability relative to shareholder equity. Starting at 14.29% in March 2012, ROE steadily declines to 5.29% by the first quarter of 2014, before declining sharply into negative figures by late 2014. The most substantial negative value recorded is -900.97% in December 2015, signaling heavy losses or impairment affecting shareholder returns. Partial recovery is observed by mid-2016, though ROE remains deeply negative, indicating ongoing financial distress.
Two-Component Disaggregation of ROA
Apache Corp., decomposition of ROA (quarterly data)
Based on: 10-Q (reporting date: 2016-06-30), 10-Q (reporting date: 2016-03-31), 10-K (reporting date: 2015-12-31), 10-Q (reporting date: 2015-09-30), 10-Q (reporting date: 2015-06-30), 10-Q (reporting date: 2015-03-31), 10-K (reporting date: 2014-12-31), 10-Q (reporting date: 2014-09-30), 10-Q (reporting date: 2014-06-30), 10-Q (reporting date: 2014-03-31), 10-K (reporting date: 2013-12-31), 10-Q (reporting date: 2013-09-30), 10-Q (reporting date: 2013-06-30), 10-Q (reporting date: 2013-03-31), 10-K (reporting date: 2012-12-31), 10-Q (reporting date: 2012-09-30), 10-Q (reporting date: 2012-06-30), 10-Q (reporting date: 2012-03-31).
The analysis of the quarterly financial ratios reveals significant trends in profitability, efficiency, and asset returns over the observed periods.
- Net Profit Margin
- The net profit margin exhibited a declining trend over time. Initially, the margin was relatively strong, starting at around 24.42% in the first quarter of 2012 and gradually decreasing with fluctuations until it reached 11.01% by the first quarter of 2014. From this point, the margin sharply deteriorated, turning negative by the third quarter of 2014 and continuing to decline steeply into increasingly negative territory through 2015 and the first half of 2016. This decline indicates that the company shifted from profitability to sustained losses during this period, with margins significantly below zero and worsening each quarter, signaling intensified financial distress or operational challenges.
- Asset Turnover
- The asset turnover ratio showed a gradual decrease from 0.33 in the first quarter of 2012 to a low near 0.22 by mid-2016. This trend suggests reduced efficiency in utilizing assets to generate sales over the timeframe. Although some minor fluctuations occurred, including a small increase to 0.34 in the first quarter of 2016, the overall pattern points toward declining operational efficiency, reflecting potentially underused or less productive assets during the latter periods.
- Return on Assets (ROA)
- Return on assets mirrored the net profit margin's trend, indicating diminishing asset profitability. Starting at 7.98% in early 2012, ROA steadily declined throughout the subsequent years, turning negative in the third quarter of 2014 and worsening dramatically thereafter. By mid-2016, ROA was deeply negative, reaching levels as low as -76.17% and -55.38%. This confirms that asset investments yielded negative returns, implying losses that could have stemmed from impaired asset performance, write-downs, or sustained operational inefficiencies.
Overall, the data illustrates a company experiencing decreasing profitability and efficiency between 2012 and 2016. There are clear signs of financial deterioration beginning in 2014, marked by negative profit margins and returns, combined with a gradual decline in the ability to convert assets into revenue. This pattern points to operational and financial challenges that severely impacted the company's performance over the analyzed quarters.