Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
Reynolds American Inc., profitability ratios
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
The financial metrics exhibit notable fluctuations and trends over the five-year period under review. A detailed examination of the profitability and return ratios reveals significant developments that characterize the company's financial performance.
- Gross Profit Margin
- The gross profit margin shows a general upward trajectory from 32.58% in 2012 to 45.48% in 2016. Despite a slight decline from 38.09% in 2013 to 36.48% in 2014, the margin recovered and increased substantially thereafter, indicating improving cost efficiency or favorable pricing strategies leading to higher profitability at the gross level.
- Operating Profit Margin
- The operating profit margin demonstrates a more volatile pattern, starting at 18.11% in 2012 and rising to 26.17% in 2013, but then declining to 20.92% in 2014. A significant surge occurs in 2015 and 2016, reaching 46.71% and further to 62.74%, respectively. This sharp increase suggests enhanced operational efficiency, cost control, or possibly extraordinary income components influencing operating results during the latter years.
- Net Profit Margin
- The net profit margin follows a trend somewhat parallel to the operating margin, with gradual improvement from 10.4% in 2012 to 14.36% in 2013, a dip to 12.15% in 2014, and then a substantial rise to 21.86% and 36.05% in 2015 and 2016 respectively. This pattern points to strengthened overall profitability, encompassing both operating earnings and other income or expense elements, with marked gains in the final years.
- Return on Equity (ROE)
- The return on equity presents a mixed trend. Initial growth from 24.2% in 2012 to 33.25% in 2013 is followed by a slight decline to 32.51% in 2014. A significant drop to 17.82% occurs in 2015 before rebounding to 27.97% in 2016. These fluctuations may reflect changes in net income relative to shareholders' equity, possibly influenced by variations in leverage, earnings volatility, or equity adjustments.
- Return on Assets (ROA)
- The return on assets exhibits variability over the period, increasing from 7.68% in 2012 to 11.15% in 2013, followed by a decrease to 9.67% in 2014 and a more pronounced fall to 6.11% in 2015. The figure rises again to 11.89% in 2016. This pattern indicates fluctuating efficiency in asset utilization to generate net income, aligning with the trends seen in profitability margins.
Overall, the data reflects an improving profit structure, notably from 2014 onward, with gross and operating margins reaching their highest levels by 2016. The profitability enhancements at various levels are accompanied by some instability in returns on equity and assets, suggesting underlying factors impacting net income and asset/equity management. The strong rise in operating and net profit margins in the final two years appears particularly significant, indicating successful operational and financial management during that period.
Return on Sales
Return on Investment
Gross Profit Margin
Reynolds American Inc., gross profit margin calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Gross profit | 7,662) | 5,987) | 4,413) | 4,558) | 3,983) | |
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Profitability Ratio | ||||||
| Gross profit margin1 | 45.48% | 40.22% | 36.48% | 38.09% | 32.58% | |
| Benchmarks | ||||||
| Gross Profit Margin, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Gross profit margin = 100 × Gross profit ÷ Net sales, includes excise taxes
= 100 × 7,662 ÷ 16,846 = 45.48%
2 Click competitor name to see calculations.
- Gross Profit
- The gross profit increased steadily over the five-year period, starting at US$ 3,983 million in 2012 and reaching US$ 7,662 million by 2016. This represents a cumulative increase of nearly 92%. Notably, the largest annual growth occurred between 2014 and 2015, where gross profit rose from US$ 4,413 million to US$ 5,987 million.
- Net Sales (Including Excise Taxes)
- Net sales fluctuated in the early years, with a slight decline from US$ 12,227 million in 2012 to US$ 11,966 million in 2013, followed by a modest increase to US$ 12,096 million in 2014. From 2014 onwards, net sales showed a strong upward trend, reaching US$ 14,884 million in 2015 and further increasing to US$ 16,846 million by 2016. This reflects a significant recovery and growth in sales after the initial decline.
- Gross Profit Margin
- The gross profit margin exhibited an overall positive trend throughout the period. Beginning at 32.58% in 2012, it improved to 38.09% in 2013, then experienced a slight dip to 36.48% in 2014. Following this, the margin increased consistently, reaching 40.22% in 2015 and peaking at 45.48% in 2016. The upward movement in margin indicates enhanced efficiency or improved pricing strategies over time.
Operating Profit Margin
Reynolds American Inc., operating profit margin calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Operating income | 10,569) | 6,953) | 2,531) | 3,132) | 2,214) | |
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Profitability Ratio | ||||||
| Operating profit margin1 | 62.74% | 46.71% | 20.92% | 26.17% | 18.11% | |
| Benchmarks | ||||||
| Operating Profit Margin, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Operating profit margin = 100 × Operating income ÷ Net sales, includes excise taxes
= 100 × 10,569 ÷ 16,846 = 62.74%
2 Click competitor name to see calculations.
The financial data reveals notable growth and fluctuations in several key performance indicators over the five-year span.
- Operating Income
- The operating income shows an overall increasing trend, starting at $2,214 million in 2012 and more than quadrupling to $10,569 million by 2016. Although there was a decline from 2013 to 2014, the subsequent years experienced significant growth, particularly a sharp rise between 2014 and 2015, and continuing strongly into 2016.
- Net Sales, Including Excise Taxes
- Net sales initially decreased slightly from $12,227 million in 2012 to $11,966 million in 2013 but then demonstrated a gradual upward trend through to 2016, reaching $16,846 million. The growth was especially pronounced from 2014 onwards, with the sales amount increasing markedly each year, reflecting sustained revenue expansion.
- Operating Profit Margin
- The operating profit margin exhibits significant variability but an overall marked improvement. Starting at 18.11% in 2012, the margin increased sharply to 26.17% in 2013, dipped to 20.92% in 2014, and then surged to exceptionally high levels of 46.71% in 2015 and 62.74% in 2016. This indicates improved operational efficiency and profitability relative to sales over the period, particularly in the latter years.
In summary, the data suggest strong growth in operating income and net sales with a clear trend toward improved profitability as evidenced by the sharply rising operating profit margin. The company appears to have enhanced its cost management or pricing strategies significantly, particularly after 2014, resulting in higher operating income margins even as sales volumes increased.
Net Profit Margin
Reynolds American Inc., net profit margin calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 6,073) | 3,253) | 1,470) | 1,718) | 1,272) | |
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Profitability Ratio | ||||||
| Net profit margin1 | 36.05% | 21.86% | 12.15% | 14.36% | 10.40% | |
| Benchmarks | ||||||
| Net Profit Margin, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Net profit margin = 100 × Net income ÷ Net sales, includes excise taxes
= 100 × 6,073 ÷ 16,846 = 36.05%
2 Click competitor name to see calculations.
The financial data reveals several notable trends over the five-year period from 2012 to 2016. There is a clear upward trajectory in net income, net sales, and net profit margin, indicating improving profitability and sales performance over time.
- Net Income (US$ in millions)
- The net income increased steadily from $1,272 million in 2012 to $6,073 million in 2016. Despite a slight dip in 2014, the overall trend is strongly positive, with a significant surge observed in 2015 and 2016. This represents nearly a fivefold increase over five years, reflecting enhanced profitability or operational efficiency.
- Net Sales, including excise taxes (US$ in millions)
- Net sales experienced fluctuations but showed a general upward trend. Sales values started at $12,227 million in 2012, slightly decreased in 2013, and then gradually increased to $16,846 million by 2016. The increase from 2014 onwards is especially notable, indicating revenue growth driving overall business expansion.
- Net Profit Margin (%)
- Net profit margin demonstrated substantial improvement across the period, growing from 10.4% in 2012 to 36.05% in 2016. Although there was a small decline in 2014, the margin nearly doubled between 2013 and 2016, reflecting better control over costs relative to sales and increasing efficiency in turning sales into profit.
Overall, the analysis indicates the company experienced robust growth in profitability and sales. The significant rise in net profit margin suggests improved operational effectiveness, likely contributing to the disproportionate growth in net income compared to sales. This performance may reflect favorable market conditions, strategic initiatives, or cost management efforts during the period under review.
Return on Equity (ROE)
Reynolds American Inc., ROE calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 6,073) | 3,253) | 1,470) | 1,718) | 1,272) | |
| Shareholders’ equity | 21,711) | 18,252) | 4,522) | 5,167) | 5,257) | |
| Profitability Ratio | ||||||
| ROE1 | 27.97% | 17.82% | 32.51% | 33.25% | 24.20% | |
| Benchmarks | ||||||
| ROE, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × 6,073 ÷ 21,711 = 27.97%
2 Click competitor name to see calculations.
The financial data reveals notable variations over the five-year period.
- Net Income
- Net income shows an overall increasing trend, rising from 1,272 million USD at the end of 2012 to 6,073 million USD in 2016. There is a significant increase in 2015 to 3,253 million USD, followed by an even larger jump in 2016, almost doubling the previous year's figure.
- Shareholders’ Equity
- Shareholders’ equity exhibits a decreasing trend from 2012 through 2014, dropping from 5,257 million USD to 4,522 million USD. However, there is a substantial increase starting in 2015, surging to 18,252 million USD and rising further to 21,711 million USD in 2016. The surge in these latter years indicates a major change in the equity base.
- Return on Equity (ROE)
- ROE initially increases from 24.2% in 2012 to a peak of 33.25% in 2013, with a minor decline in 2014 to 32.51%. It then drops significantly to 17.82% in 2015, before recovering somewhat to 27.97% in 2016. This pattern suggests fluctuating profitability relative to equity, influenced likely by the equity increase observed in 2015 and 2016.
In summary, net income has grown substantially, particularly in the last two years of the period. Shareholders’ equity declined initially but then experienced a sharp rise, which coincides with a dip and partial recovery in ROE. The data indicates notable changes in the company's capital structure and profitability dynamics during this timeframe.
Return on Assets (ROA)
Reynolds American Inc., ROA calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 6,073) | 3,253) | 1,470) | 1,718) | 1,272) | |
| Total assets | 51,095) | 53,224) | 15,196) | 15,402) | 16,557) | |
| Profitability Ratio | ||||||
| ROA1 | 11.89% | 6.11% | 9.67% | 11.15% | 7.68% | |
| Benchmarks | ||||||
| ROA, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
ROA = 100 × Net income ÷ Total assets
= 100 × 6,073 ÷ 51,095 = 11.89%
2 Click competitor name to see calculations.
Analysis of the annual financial data indicates notable fluctuations and growth trends across the observed periods.
- Net Income
- The net income shows a generally increasing trend with some variability. Starting at $1,272 million in 2012, it increased substantially to $1,718 million in 2013. There was a slight decline in 2014 to $1,470 million, followed by a significant rise to $3,253 million in 2015. The most pronounced increase occurred in 2016, with net income nearly doubling to $6,073 million, indicating strong profitability growth over the five-year span.
- Total Assets
- Total assets remained relatively stable from 2012 through 2014, with slight declines from $16,557 million in 2012 to $15,196 million in 2014. However, there is a marked increase in assets for 2015, jumping to $53,224 million, followed by a marginal decrease to $51,095 million in 2016. This significant increase in 2015 may suggest a major acquisition, investment, or revaluation impacting the balance sheet during this period.
- Return on Assets (ROA)
- The ROA exhibits variability corresponding with the trends in net income and total assets. In 2012, the ROA was 7.68%, which increased to 11.15% in 2013, reflecting improved efficiency in asset utilization. It slightly declined to 9.67% in 2014 and further dropped to 6.11% in 2015, likely influenced by the substantial rise in total assets which outpaced net income growth that year. In 2016, ROA recovered strongly to 11.89%, underscoring enhanced profitability relative to asset base during this period.
Overall, the data reveals that despite assets rising dramatically in 2015, net income growth in 2016 was particularly robust, resulting in a strong return on assets. The company's profitability metrics signal effective management of resources and an improved financial position towards the end of the period analyzed.