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.
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- Statement of Comprehensive Income
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2020
- Price to Book Value (P/BV) since 2020
- Analysis of Revenues
- Aggregate Accruals
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Two-Component Disaggregation of ROE
Carrier Global Corp., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2023-03-31), 10-K (reporting date: 2022-12-31), 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31), 10-K (reporting date: 2020-12-31), 10-Q (reporting date: 2020-09-30), 10-Q (reporting date: 2020-06-30), 10-Q (reporting date: 2020-03-31).
- Return on Assets (ROA)
- The ROA displays a positive trend starting from March 31, 2020. From 7.9% in the first recorded quarter, it increased to a peak of 14.15% by December 31, 2022. This reflects an improvement in asset utilization efficiency over the observed periods. The ROA fluctuates somewhat, showing a slight decline to 6.36% by March 31, 2022, before rising again sharply. As of March 31, 2023, it recorded 9.57%, indicating some volatility but overall positive growth compared to the initial quarters.
- Financial Leverage
- Financial leverage shows a declining trend from March 31, 2020, where it started at 8.16. It steadily decreased to 3.25 by March 31, 2023. This decline suggests a reduction in the reliance on debt relative to equity, which may indicate a strengthening balance sheet or a strategic move to reduce financial risk. The ratio gradually decreased with minor fluctuations around mid-2021 to early 2023 but maintained a generally downward trajectory overall.
- Return on Equity (ROE)
- ROE also exhibits an overall upward trend from 31.7% in the earliest quarter available (March 31, 2020) to a high of 50.17% at December 31, 2022. This represents increasing profitability and return generation for shareholders. However, the ROE shows volatility, with a notable decrease to 24.59% by March 31, 2022, followed by a rapid recovery. The decline and subsequent rise indicate variability, perhaps due to market or operational factors. By March 31, 2023, ROE settled at 31.08%, reflecting a lower profitability level compared to the peak but still above the initial measurements.
Three-Component Disaggregation of ROE
Carrier Global Corp., decomposition of ROE (quarterly data)
Based on: 10-Q (reporting date: 2023-03-31), 10-K (reporting date: 2022-12-31), 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31), 10-K (reporting date: 2020-12-31), 10-Q (reporting date: 2020-09-30), 10-Q (reporting date: 2020-06-30), 10-Q (reporting date: 2020-03-31).
- Net Profit Margin
- The net profit margin demonstrates a general upward trend starting from 11.35% in the first quarter of 2020 to a peak of 17.55% in the last quarter of 2022. After reaching this high, it declines somewhat to 12.02% in the first quarter of 2023. Notably, there is a significant improvement between early 2022 and late 2022, with the margin increasing from 8.07% to over 17%. This suggests enhanced profitability during this period, although the subsequent decline may indicate emerging pressures on profit margins or increased costs.
- Asset Turnover
- Asset turnover exhibits a steady increase from 0.70 in March 2020 to a peak of 0.86 in the third quarter of 2022, indicating improved efficiency in utilizing assets to generate sales. However, there is a slight decrease toward early 2023, with the ratio moving from 0.81 in the fourth quarter of 2022 to 0.80 in the first quarter of 2023. Overall, asset utilization efficiency has improved over the period, though there are signs of stabilization or a minor decline near the end.
- Financial Leverage
- Financial leverage has been on a consistent downward trend from a high of 8.16 in March 2020, decreasing substantially to 3.25 by the first quarter of 2023. This declining trend suggests a reduction in reliance on debt financing or a strengthening of equity base over time. The most notable reductions occur in the early periods, with more gradual decreases observed in later quarters. The ratio’s stabilization near the low 3s range indicates a more conservative capital structure.
- Return on Equity (ROE)
- The ROE shows notable volatility but a generally strong upward trajectory over the period. Starting around 31.7% in the first quarter of 2020, it peaks dramatically at 50.17% in the fourth quarter of 2022. This strong growth indicates improved profitability relative to shareholder equity. Similar to net profit margin, ROE experiences a decline in the first quarter of 2023, dropping to 31.08%, which may reflect pressures on earnings or changes in equity levels. Despite fluctuations, the overall pattern reflects enhanced value generation for equity holders during most of the observed quarters.
Two-Component Disaggregation of ROA
Carrier Global Corp., decomposition of ROA (quarterly data)
Based on: 10-Q (reporting date: 2023-03-31), 10-K (reporting date: 2022-12-31), 10-Q (reporting date: 2022-09-30), 10-Q (reporting date: 2022-06-30), 10-Q (reporting date: 2022-03-31), 10-K (reporting date: 2021-12-31), 10-Q (reporting date: 2021-09-30), 10-Q (reporting date: 2021-06-30), 10-Q (reporting date: 2021-03-31), 10-K (reporting date: 2020-12-31), 10-Q (reporting date: 2020-09-30), 10-Q (reporting date: 2020-06-30), 10-Q (reporting date: 2020-03-31).
- Net Profit Margin
- The net profit margin exhibits an overall upward trend from March 2021 through the end of 2022, peaking at 17.55% in December 2022. Starting at 11.35% in March 2021, the margin steadily increased over the subsequent quarters, reaching its highest point in the last quarter of 2022. However, in the first quarter of 2023, the net profit margin declined notably to 12.02%, indicating a decrease in profitability relative to revenue after a period of strong performance.
- Asset Turnover
- Asset turnover demonstrates a gradual increase over the observed periods, beginning at 0.70 in March 2021 and reaching its highest value of 0.86 in September 2022. This suggests an improvement in the efficiency with which the company utilizes its assets to generate sales. Following the peak in September 2022, there is a slight decline to 0.81 in December 2022 and further to 0.78 in March 2023, indicating a marginal reduction in asset utilization efficiency towards the most recent quarter.
- Return on Assets (ROA)
- The return on assets mirrors the net profit margin's trend in many respects, showing an increase from 7.9% in March 2021 to a peak of 14.15% in December 2022. This rise aligns with improved profitability and asset utilization during this period. Subsequently, ROA decreased to 13.55% in the same quarter and further to 9.57% in March 2023. The decrease in early 2023 suggests a decline in overall asset profitability following a period of substantial growth.
- Summary of Trends
- Across the observed timeframe, the company experienced notable gains in profitability and asset efficiency starting in early 2021, reaching peaks at the end of 2022. Both net profit margin and ROA increased significantly, supported by improved asset turnover. However, the first quarter of 2023 shows a reversal of these trends, with declines in all three metrics. This pattern may suggest cyclical factors, operational challenges, or market influences impacting profitability and efficiency after a prolonged expansion phase.