Lockheed Martin Corp. (NYSE:LMT)

The period under review demonstrates significant fluctuations in the relationship between Return on Assets, Financial Leverage, and Return on Equity. Return on Equity exhibits substantial volatility, while Return on Assets shows a more moderate, albeit declining, trend. Financial Leverage consistently increases over the observed timeframe.

Return on Assets (ROA)

Return on Assets peaked at 13.19% in 2023 before declining to 8.38% in 2025. A decrease is observed from 12.41% in 2021 to 10.84% in 2022, followed by the aforementioned peak, and then a consistent downward trend through 2025. This suggests a diminishing ability to generate profit from its asset base.

Financial Leverage

Financial Leverage steadily increased throughout the period, rising from 4.64 in 2021 to 8.90 in 2025. This indicates an increasing reliance on debt financing. The most substantial increase occurred between 2022 and 2023, and the rate of increase slowed slightly between 2024 and 2025.

Return on Equity (ROE)

Return on Equity experienced considerable variation. It rose from 57.62% in 2021 to a high of 101.24% in 2023, coinciding with the peak in Return on Assets and a significant increase in Financial Leverage. Subsequently, ROE decreased to 84.26% in 2024 and further to 74.65% in 2025. The decline in ROE from 2023 to 2025 is attributable to both the decrease in ROA and a slowing rate of increase in Financial Leverage.

The substantial increase in Return on Equity in 2023 was largely driven by the combined effect of improved asset utilization (as reflected in ROA) and increased financial leverage. However, the subsequent decline in ROE, despite continued high leverage, highlights the importance of maintaining profitability at the asset level. The observed trends suggest that future Return on Equity performance will be increasingly sensitive to changes in Return on Assets, given the already elevated levels of Financial Leverage.

The period under review demonstrates significant fluctuations in the components contributing to Return on Equity (ROE). While ROE itself exhibits volatility, a closer examination of Net Profit Margin, Asset Turnover, and Financial Leverage reveals the underlying drivers of these changes.

Net Profit Margin

Net Profit Margin decreased from 9.42% in 2021 to 8.69% in 2022, before recovering to 10.24% in 2023. A subsequent decline is observed in 2024, falling to 7.51%, and continuing downward to 6.69% in 2025. This indicates increasing pressure on profitability in the latter years of the period.

Asset Turnover

Asset Turnover remained relatively stable between 2021 and 2025, fluctuating within a narrow range of 1.25 to 1.32. A slight decrease is noted from 1.32 in 2021 to 1.25 in 2022, followed by a modest recovery to 1.29 in 2023. The ratio remains near this level through 2024 before decreasing again to 1.25 in 2025. This suggests consistent efficiency in utilizing assets to generate revenue.

Financial Leverage

Financial Leverage increased consistently throughout the period, rising from 4.64 in 2021 to 8.90 in 2025. The most substantial increase occurred between 2022 and 2023 (from 5.71 to 7.67) and again between 2023 and 2024 (from 7.67 to 8.78). This indicates a growing reliance on debt financing.

The substantial increase in ROE from 61.86% in 2022 to 101.24% in 2023 is primarily attributable to the combined effect of improved Net Profit Margin and significantly increased Financial Leverage. However, the subsequent decline in ROE to 84.26% in 2024 and 74.65% in 2025 is linked to a decrease in Net Profit Margin, despite continued high levels of Financial Leverage. The relatively stable Asset Turnover ratio suggests that changes in revenue generation are not the primary driver of ROE fluctuations. The increasing Financial Leverage, while initially boosting ROE, may present increased financial risk in the long term, particularly as Net Profit Margin declines.

ROE Decomposition

The three-component DuPont analysis reveals that ROE is increasingly sensitive to changes in Net Profit Margin and Financial Leverage. While Financial Leverage has consistently contributed to higher ROE, the declining Net Profit Margin is offsetting some of these gains and driving the overall ROE downward in the most recent periods.

The five-component DuPont analysis reveals significant shifts in the company’s Return on Equity (ROE) over the observed period. While ROE generally increased from 2021 to 2023, it subsequently declined in 2024 and 2025. This fluctuation is attributable to interacting changes in profitability, asset utilization, and financial leverage.

Tax Burden

The tax burden remained relatively stable, fluctuating between 0.84 and 0.86 throughout the period. This indicates consistent tax efficiency with minimal impact on overall ROE changes.

Interest Burden

A gradual decrease in the interest burden is observed, moving from 0.93 in 2021 to 0.84 in 2025. This suggests improved management of interest-bearing liabilities and a decreasing proportion of earnings allocated to interest expense, positively contributing to ROE.

EBIT Margin

The EBIT margin experienced volatility. It decreased from 12.11% in 2021 to 11.07% in 2022, then increased substantially to 13.34% in 2023, before declining to 10.21% in 2024 and further to 9.38% in 2025. This indicates fluctuating operational efficiency and pricing power, significantly impacting ROE. The 2023 peak in EBIT margin was a key driver of the high ROE observed in that year.

Asset Turnover

Asset turnover exhibited a modest decline from 1.32 in 2021 to 1.25 in both 2022 and 2025, with a slight recovery to 1.29 in 2023 and remaining at 1.28 in 2024. This suggests a slight decrease in the efficiency with which assets are used to generate sales, exerting a downward pressure on ROE.

Financial Leverage

Financial leverage increased considerably from 4.64 in 2021 to 8.90 in 2025. This substantial increase in leverage amplified the impact of both positive and negative changes in profitability on ROE. While leverage contributed to the ROE increase between 2021 and 2023, it also exacerbated the ROE decline in 2024 and 2025 as EBIT margin decreased.

The significant increase in financial leverage, coupled with the declining EBIT margin in the later years, appears to be the primary driver of the ROE decrease from 2023 to 2025. Although the interest burden decreased, the increased scale of debt outstanding meant that the overall impact on earnings was less pronounced. The interplay between these components highlights the importance of managing both profitability and financial risk to sustain high levels of ROE.

The period between 2021 and 2025 demonstrates fluctuating performance in profitability and efficiency. Return on Assets (ROA) experienced initial growth followed by a decline. This fluctuation can be largely attributed to offsetting movements in Net Profit Margin and Asset Turnover, the two components of ROA.

Net Profit Margin

Net Profit Margin began at 9.42% in 2021, decreased to 8.69% in 2022, then increased to a peak of 10.24% in 2023. A subsequent decline was observed in 2024, falling to 7.51%, and continued downward in 2025, reaching 6.69%. This indicates increasing pressure on profitability in the latter years of the observed period.

Asset Turnover

Asset Turnover exhibited relative stability throughout the period. Starting at 1.32 in 2021, it decreased to 1.25 in 2022, then recovered to 1.29 in 2023. It remained relatively consistent at 1.28 in 2024 before decreasing slightly to 1.25 in 2025. The changes in Asset Turnover were less pronounced than those in Net Profit Margin.

Return on Assets (ROA)

ROA mirrored the combined effect of the two components. It increased from 12.41% in 2021 to 13.19% in 2023, driven by the initial increase in Net Profit Margin and a slight improvement in Asset Turnover. However, ROA then decreased to 9.59% in 2024 and further to 8.38% in 2025, primarily due to the significant decline in Net Profit Margin, despite the relatively stable Asset Turnover. The decline in ROA suggests diminishing efficiency in generating profits from assets.

The interplay between Net Profit Margin and Asset Turnover highlights the drivers of ROA. While Asset Turnover remained relatively stable, the fluctuations in Net Profit Margin had a more substantial impact on overall ROA performance. The decreasing trend in Net Profit Margin in the final two years is a key area for further investigation.

The period under review demonstrates fluctuations in key profitability and efficiency metrics. Return on Assets (ROA) experienced initial growth followed by a decline, influenced by changes in the constituent components of the DuPont analysis. A consistent examination of these components reveals underlying drivers of performance.

Return on Assets (ROA)

ROA peaked in 2023 at 13.19% before decreasing to 8.38% by 2025. This decline suggests diminishing efficiency in generating profit from the company’s asset base. The initial increase from 12.41% in 2021 to 13.19% in 2023 indicates improved profitability and/or asset utilization, but this momentum was not sustained.

EBIT Margin

The EBIT Margin exhibited volatility throughout the period. It decreased from 12.11% in 2021 to 11.07% in 2022, then increased significantly to 13.34% in 2023. However, a subsequent decline to 9.38% in 2025 was observed. This suggests fluctuations in operational profitability, potentially due to changes in cost structure or pricing strategies. The 2025 value represents the lowest margin observed during the analyzed timeframe.

Asset Turnover

Asset Turnover remained relatively stable, fluctuating between 1.25 and 1.32. A slight decrease is noted from 1.32 in 2021 to 1.25 in both 2022 and 2025. This indicates a modest change in how effectively the company utilizes its assets to generate sales. The consistency suggests that changes in sales are largely aligned with changes in the asset base.

Tax Burden

The Tax Burden remained consistently high, ranging between 0.84 and 0.86. This indicates a relatively stable effective tax rate throughout the period. The minimal fluctuation suggests that changes in the tax burden did not significantly contribute to the overall changes in ROA.

Interest Burden

The Interest Burden demonstrated a gradual decrease from 0.93 in 2021 to 0.84 in 2025. This suggests a reduction in the proportion of earnings consumed by interest expense, potentially due to debt reduction or lower interest rates. This positive trend partially offset the negative impacts of declining EBIT Margin on ROA.

The decline in ROA from 2023 to 2025 appears primarily driven by the decrease in EBIT Margin, despite a favorable trend in the Interest Burden. While Asset Turnover remained relatively stable, the diminishing profitability of each dollar of asset sales significantly impacted overall returns. Further investigation into the factors influencing the EBIT Margin is warranted.

An examination of the provided financial metrics reveals trends in profitability and associated burdens between 2021 and 2025. The Net Profit Margin demonstrates a fluctuating pattern, initially decreasing before exhibiting a partial recovery, and then declining again. This fluctuation is influenced by changes in both the EBIT Margin, and the burdens associated with taxes and interest.

Net Profit Margin

The Net Profit Margin decreased from 9.42% in 2021 to 8.69% in 2022, representing a contraction in overall profitability. A subsequent increase to 10.24% in 2023 suggests improved efficiency or revenue management. However, this improvement was not sustained, with the margin falling to 7.51% in 2024 and further to 6.69% in 2025. This final decline indicates a weakening of profitability in the most recent period.

EBIT Margin

The EBIT Margin followed a similar pattern to the Net Profit Margin, though with differing magnitudes. It decreased from 12.11% in 2021 to 11.07% in 2022, then increased significantly to 13.34% in 2023. A subsequent decline to 10.21% in 2024 and 9.38% in 2025 mirrors the trend observed in the Net Profit Margin, suggesting operational performance is a key driver of overall profitability. The magnitude of the decline from 2023 to 2025 is substantial.

Tax Burden

The Tax Burden remained relatively stable throughout the period, fluctuating between 0.84 and 0.86. This consistency suggests that changes in the effective tax rate did not significantly contribute to the observed fluctuations in Net Profit Margin. A slight decrease in 2023 was not sustained.

Interest Burden

The Interest Burden exhibited a gradual decreasing trend, moving from 0.93 in 2021 to 0.84 in 2025. This indicates a lessening impact of interest expense on net income over time, potentially due to debt reduction or favorable interest rate adjustments. While the impact is present, it does not fully offset the declines in EBIT Margin and, consequently, Net Profit Margin.

In summary, the observed trends suggest that operational performance, as reflected in the EBIT Margin, is the primary driver of changes in Net Profit Margin. While the Interest Burden decreased, its effect was not sufficient to counteract the overall decline in profitability observed in the later years of the period. The Tax Burden remained largely constant, indicating it was not a significant factor in the observed fluctuations.