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.
Two-Component Disaggregation of ROE
RH, decomposition of ROE
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
- Return on Assets (ROA)
- The Return on Assets shows an overall upward trend from 0.13% in February 2018 to a peak of 12.43% in January 2022, followed by a slight decline to 9.96% in January 2023. This indicates improving efficiency in asset utilization over the period until 2022, with a moderate decrease in asset profitability in the most recent year.
- Financial Leverage
- Financial leverage data is missing for the first two observed dates. From January 30, 2021, onward, the financial leverage ratio sharply decreased from 131.13 to 6.48 in January 2022, then further decreased to 4.73 in January 2023 before rising again to 6.77. This suggests significant deleveraging occurred between 2021 and 2022, followed by a slight increase in leverage in the most recent year, indicating shifts in the company's capital structure and risk profile.
- Return on Equity (ROE)
- ROE was not available for the earliest two periods but exhibited an extremely high value of 1181.57% in January 2021. Subsequently, it decreased sharply to around 60.81% in January 2022, with a slight decline to 58.84% in January 2023 before rising again to 67.37%. Although the ROE values stabilized at a much lower level than the peak in 2021, they remain substantially elevated, reflecting strong profitability relative to shareholders' equity during the latest years.
Three-Component Disaggregation of ROE
RH, decomposition of ROE
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
- Net Profit Margin
- The net profit margin exhibited a generally upward trend from 2018 to 2022, increasing from 0.09% in 2018 to a peak of 18.32% in 2022. However, there was a decline in 2023, with the margin decreasing to 14.72%. This indicates improved profitability over the years until 2022, followed by a slight reduction in the latest period.
- Asset Turnover
- Asset turnover showed a consistent decline throughout the entire period, decreasing from 1.41 in 2018 to 0.68 in 2022 and remaining stable at 0.68 in 2023. This trend suggests a diminishing efficiency in utilizing assets to generate revenue.
- Financial Leverage
- Financial leverage data is only available from 2020 onwards, starting with an exceptionally high ratio of 131.13 in 2020. This figure then sharply declined to 6.48 in 2021, followed by a further decrease to 4.73 in 2022, before rising again to 6.77 in 2023. The extreme value in 2020 may indicate an anomaly or one-time event impacting leverage that year, with subsequent years showing more normalized leverage levels, albeit with some variability.
- Return on Equity (ROE)
- ROE data begins in 2020 with an extraordinarily high value of 1181.57%, which then dropped substantially to 60.81% in 2021. It slightly declined again to 58.84% in 2022, followed by a modest increase to 67.37% in 2023. The 2020 figure likely reflects an unusual circumstance or financial event, while the subsequent years point to strong but more sustainable returns on equity.
Five-Component Disaggregation of ROE
RH, decomposition of ROE
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
- Tax Burden
- The tax burden demonstrated significant variation over the periods, starting from a low value of 0.07 in early 2018 and subsequently increasing sharply to values above 0.7 from 2019 onwards. The highest value was observed in early 2023 at 1.21, indicating a substantial increase in tax expense relative to pre-tax earnings in that year.
- Interest Burden
- The interest burden showed an overall improving trend from 0.32 in early 2018 to a peak of 0.92 in early 2022, suggesting reduced interest expense impact relative to operating income. However, it decreased to 0.74 in early 2023, indicating a slight increase in the interest expense burden in the most recent year.
- EBIT Margin
- The EBIT margin displayed continuous growth from 3.82% in 2018 through to its peak of 23.65% in early 2022, reflecting improved operational profitability over the years. Nonetheless, a decline to 16.4% occurred in early 2023, signaling a reduction in operating profitability after reaching the peak.
- Asset Turnover
- Asset turnover experienced a steady decline from 1.41 in 2018 to 0.68 in both 2022 and 2023, indicating a decreased efficiency in using assets to generate revenue. This downward trend points to either an increase in asset base not matched by revenue growth or reduced revenue generation capability relative to assets.
- Financial Leverage
- Financial leverage data is partially missing, but available values indicate extreme volatility. A notably high figure of 131.13 was recorded in early 2020, followed by a significant decrease to 6.48 in 2021 and further decline and slight increase to 4.73 and 6.77 in 2022 and 2023 respectively. This indicates fluctuating use of debt or equity financing structures over time, with a more moderate level in the most recent years compared to 2020.
- Return on Equity (ROE)
- ROE values, available from 2020 onwards, exhibited extreme variability. An exceptionally high ROE of 1181.57% in early 2020 sharply dropped to 60.81% in 2021 and remained relatively stable around 58.84% and 67.37% in the following years. This pattern suggests extraordinary profitability or one-time events impacting 2020, followed by stabilization at high but more sustainable returns thereafter.
Two-Component Disaggregation of ROA
RH, decomposition of ROA
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
- Net Profit Margin
- The net profit margin demonstrates a significant upward trend from 0.09% in early 2018 to a peak of 18.32% in early 2022. This indicates that the company has increasingly improved its profitability relative to sales over this period. However, there is a notable decline in the most recent year, dropping to 14.72% in early 2023, which suggests some reduction in profit efficiency despite maintaining a relatively high level.
- Asset Turnover
- The asset turnover ratio shows a declining trend, decreasing steadily from 1.41 in early 2018 to 0.68 in early 2022 and remaining at that level in 2023. This pattern indicates a reduced efficiency in generating sales from the company's assets, implying that the asset base may be growing faster than sales or that asset utilization has weakened.
- Return on Assets (ROA)
- Return on assets exhibits an initial sharp increase from 0.13% in 2018 to a high of 12.43% in early 2022, reflecting improved overall profitability relative to the company's asset base. In the most recent period of early 2023, ROA declines to 9.96%, which corresponds with the declines observed in net profit margin and suggests a slight erosion in asset profitability.
Four-Component Disaggregation of ROA
RH, decomposition of ROA
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
- Tax Burden
- The tax burden ratio shows a significant increase over the years, starting from a very low value of 0.07 in early 2018 and rising sharply to 1.21 by early 2023. This indicates an increasing proportion of pre-tax income being reduced by taxes, especially notable from 2021 onwards.
- Interest Burden
- The interest burden exhibits a general upward trend from 0.32 in 2018 to a peak of 0.92 in early 2022, followed by a decline to 0.74 in 2023. This suggests fluctuations in interest expenses impacting operating income, with costs increasing until 2022 before easing somewhat.
- EBIT Margin
- The EBIT margin shows continuous growth from 3.82% in 2018 to a high of 23.65% in 2022, indicating improved operating profitability. However, a decline to 16.4% is observed in 2023, suggesting a reduction in operational efficiency or increased costs relative to revenue in the most recent year.
- Asset Turnover
- Asset turnover declines steadily from 1.41 in 2018 to 0.68 in 2022 and 2023, halving over this period. This trend points to decreased efficiency in utilizing assets to generate sales, which could imply either asset base growth outpacing sales or a weakening sales performance relative to asset investment.
- Return on Assets (ROA)
- The ROA strengthens significantly from a minimal 0.13% in 2018 to a peak of 12.43% in 2022, reflecting improved overall profitability and efficient use of assets. A slight decline to 9.96% in 2023 aligns with the somewhat reduced EBIT margin and stable asset turnover, indicating a modest drop in asset-based returns.
Disaggregation of Net Profit Margin
RH, decomposition of net profit margin ratio
Based on: 10-K (reporting date: 2023-01-28), 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03).
- Tax Burden
- The tax burden ratio exhibited significant volatility over the observed period. Initially recorded at a low value of 0.07 in early 2018, it experienced a sharp increase to 0.83 in 2019. This elevated level remained relatively stable through 2020 and 2022, with minor fluctuations. Notably, in 2023, the tax burden ratio rose further to 1.21, indicating an increased proportion of earnings consumed by taxes in the latest period.
- Interest Burden
- The interest burden ratio showed an overall upward trend from 0.32 in 2018 to a peak of 0.92 in 2022, suggesting an improvement in the company’s ability to cover interest expenses with operating income. However, this trend reversed in 2023 with a decrease to 0.74, indicating a somewhat reduced capacity to cover interest costs compared to the prior year.
- EBIT Margin
- Operating profitability, as measured by the EBIT margin, demonstrated a consistently positive trend. Starting at a modest 3.82% in 2018, it increased steadily each year to reach a high of 23.65% in 2022. In 2023, the EBIT margin declined to 16.4%, indicating a reduction in operating profitability after peaking the previous year, but still reflecting a substantial improvement compared to the initial periods.
- Net Profit Margin
- The net profit margin followed a similar trajectory to the EBIT margin, moving from a negligible 0.09% in 2018 to a pronounced 18.32% in 2022. The margin declined in 2023 to 14.72%, signaling a decrease in the company’s bottom-line profitability after the peak year. Despite this dip, the net profit margin remained significantly higher than in the early years of the timeframe.