Texas Instruments Inc. (NASDAQ:TXN)

The period under review demonstrates fluctuating performance in profitability and financial leverage. Return on Assets (ROA) exhibited initial growth followed by a substantial decline, while Financial Leverage consistently increased. Return on Equity (ROE) mirrored the ROA trend, experiencing initial gains before a significant decrease.

Return on Assets (ROA)

ROA increased from 31.48% in 2021 to 32.16% in 2022, indicating improved asset utilization efficiency. However, a marked decrease occurred in subsequent years, falling to 20.12% in 2023, 13.51% in 2024, and slightly recovering to 14.46% in 2025. This suggests a weakening ability to generate earnings from its assets over the latter part of the period.

Financial Leverage

Financial Leverage showed a consistent upward trend throughout the period, rising from 1.85 in 2021 to 2.13 in 2025. This indicates an increasing reliance on debt financing. The increase in leverage amplified the impact of changes in ROA on ROE.

Return on Equity (ROE)

ROE followed a similar pattern to ROA, increasing from 58.27% in 2021 to 60.02% in 2022. A substantial decline was then observed, with ROE decreasing to 38.53% in 2023, 28.39% in 2024, and a modest recovery to 30.73% in 2025. The fluctuations in ROE are directly attributable to the combined effects of changes in ROA and Financial Leverage.

The increasing Financial Leverage partially offset the declining ROA in the later years, preventing an even more dramatic decrease in ROE. However, the overall trend indicates diminishing profitability relative to equity investment.

The period under review demonstrates a shifting performance profile as indicated by the three-component DuPont analysis. Overall Return on Equity (ROE) experienced a notable decline from 2021 to 2024, with a slight recovery in 2025. This fluctuation is attributable to changes in Net Profit Margin, Asset Turnover, and Financial Leverage.

Net Profit Margin

The Net Profit Margin exhibited initial growth, increasing from 42.35% in 2021 to 43.68% in 2022. However, a consistent downward trend followed, decreasing to 28.28% by 2025. This suggests increasing costs or decreasing revenue relative to sales over the latter part of the period.

Asset Turnover

Asset Turnover remained relatively stable at 0.74 in both 2021 and 2022. A significant decrease was observed in 2023, falling to 0.54, and continued to decline to 0.44 in 2024. A modest increase to 0.51 was noted in 2025, but remained below the levels seen in the earlier years. This indicates a decreasing efficiency in utilizing assets to generate sales.

Financial Leverage

Financial Leverage showed a steady increase throughout the period, rising from 1.85 in 2021 to 2.13 in 2025. This indicates an increasing reliance on debt financing. While increased leverage can amplify returns, it also elevates financial risk.

The decline in ROE from 2021 to 2024 was primarily driven by the combined effect of decreasing Net Profit Margin and Asset Turnover. The increase in Financial Leverage partially offset these declines, but was insufficient to maintain the initial ROE levels. The slight recovery in ROE in 2025 appears to be linked to a modest improvement in Asset Turnover, alongside continued high levels of Financial Leverage. The decreasing profitability and asset efficiency are key areas of concern, despite the increased use of financial leverage.

The five-component DuPont analysis reveals a shifting performance profile over the observed period. Return on Equity (ROE) experienced a decline from 2022 to 2024, followed by a modest recovery in 2025. This fluctuation is attributable to interacting changes in profitability, efficiency, and financial leverage.

Profitability (EBIT Margin)

The EBIT Margin demonstrated initial growth from 2021 to 2022, increasing from 49.62% to 51.16%. However, a consistent downward trend followed, with the margin decreasing to 38.11% by 2024 and stabilizing at 35.36% in 2025. This suggests increasing cost pressures or declining pricing power.

Efficiency (Asset Turnover)

Asset Turnover exhibited a decline from 0.74 in both 2021 and 2022 to 0.54 in 2023, and further to 0.44 in 2024. A slight recovery to 0.51 was observed in 2025. This indicates decreasing efficiency in utilizing assets to generate revenue, potentially due to overinvestment in assets or declining sales.

Financial Leverage

Financial Leverage steadily increased from 1.85 in 2021 to 2.13 in 2025. This indicates a growing reliance on debt financing, which amplifies both profits and losses. The increasing leverage partially offset the declines in profitability and efficiency in earlier years, but ultimately could not prevent the ROE decline.

Tax Burden & Interest Burden

Both the Tax Burden and Interest Burden remained relatively stable throughout the period. The Tax Burden held constant at 0.87 for the first three years, then increased slightly to 0.88 and remained at that level. The Interest Burden decreased gradually from 0.98 to 0.91, suggesting improved management of interest expenses, though the impact on overall ROE was limited.

The decrease in ROE from 2022 to 2024 was primarily driven by the combined effect of declining EBIT Margin and Asset Turnover. While increased Financial Leverage provided some counterbalancing effect, it was insufficient to maintain the prior level of ROE. The modest recovery in ROE in 2025 is linked to the slight improvement in Asset Turnover and stable leverage, despite the continued decline in the EBIT Margin.

The financial performance, as indicated by the two-component disaggregation of Return on Assets (ROA), reveals a shifting dynamic over the five-year period. Initially, strong profitability drove ROA, but subsequent years demonstrate a growing influence of operational efficiency, albeit with overall declining returns.

Net Profit Margin

The Net Profit Margin exhibited an initial increase from 42.35% in 2021 to 43.68% in 2022. However, a consistent decline is then observed, falling to 37.16% in 2023, 30.68% in 2024, and further to 28.28% in 2025. This suggests decreasing profitability over time, potentially due to increased costs, pricing pressures, or shifts in product mix.

Asset Turnover

Asset Turnover remained relatively stable at 0.74 in both 2021 and 2022. A notable decrease occurred in 2023, dropping to 0.54, and continued to decline to 0.44 in 2024. A slight recovery to 0.51 is seen in 2025, but remains below the levels observed in the earlier years. This indicates a diminishing ability to generate sales from its asset base, potentially stemming from inventory management issues, underutilized capacity, or declining sales.

Return on Assets (ROA)

Return on Assets followed the trends of its components. ROA peaked at 32.16% in 2022, mirroring the high Net Profit Margin. Subsequently, ROA experienced a substantial decline, reaching 20.12% in 2023 and 13.51% in 2024. A modest increase to 14.46% in 2025 offers limited recovery. The decline in ROA is attributable to the combined effect of decreasing profitability and decreasing asset utilization.

The initial strong ROA was primarily driven by a high Net Profit Margin. However, as the Net Profit Margin decreased, the impact of declining Asset Turnover became more pronounced, accelerating the overall reduction in ROA. The slight improvement in Asset Turnover in 2025 did not fully offset the continued decline in Net Profit Margin, resulting in a limited recovery in ROA.

The four-component disaggregation of Return on Assets (ROA) reveals a shifting performance profile over the five-year period. While the Tax Burden remained remarkably stable, fluctuations were observed in Interest Burden, EBIT Margin, and Asset Turnover, collectively impacting overall ROA.

Tax Burden

The Tax Burden exhibited consistency, holding at 0.87 for 2021 and 2022, then increasing marginally to 0.88 for the remaining years. This indicates a stable effective tax rate throughout the period.

Interest Burden

The Interest Burden demonstrated a slight decreasing trend. Starting at 0.98 in 2021 and 2022, it declined to 0.95 in 2023, and further to 0.91 in both 2024 and 2025. This suggests a decreasing proportion of earnings is required to cover interest expenses, potentially due to debt management or lower interest rates.

EBIT Margin

The EBIT Margin experienced a notable decline. It peaked at 49.62% in 2021 and 51.16% in 2022, before decreasing to 44.36% in 2023, 38.11% in 2024, and finally to 35.36% in 2025. This indicates diminishing profitability from core operations.

Asset Turnover

Asset Turnover showed considerable volatility. It remained constant at 0.74 in 2021 and 2022, then decreased significantly to 0.54 in 2023 and 0.44 in 2024. A modest recovery to 0.51 was observed in 2025. This suggests a decreasing efficiency in generating sales from the asset base, followed by a slight improvement in the most recent year.

The combined effect of these components is clearly reflected in the ROA trend. ROA peaked at 32.16% in 2022, then declined substantially to 20.12% in 2023 and 13.51% in 2024. A slight increase to 14.46% was noted in 2025, but remained significantly below the earlier levels. The primary drivers of this decline appear to be the decreasing EBIT Margin and Asset Turnover, despite the favorable trend in Interest Burden and stable Tax Burden.

The substantial drop in ROA from 2022 to 2024 warrants further investigation into the factors contributing to the reduced EBIT Margin and Asset Turnover. While the modest recovery in 2025 is encouraging, sustained improvement in these areas will be crucial for restoring ROA to previous levels.

An examination of the provided financial metrics reveals trends in profitability and associated burdens between 2021 and 2025. The net profit margin demonstrates a consistent decline over the five-year period, while both the tax burden and interest burden exhibit relative stability, though with a slight shift in the interest burden.

Net Profit Margin

The net profit margin decreased steadily from 42.35% in 2021 to 28.28% in 2025. This represents a cumulative decline of approximately 33.3%. The rate of decline appears to accelerate in the later years of the period, with larger decreases observed between 2022-2023 and 2023-2024 compared to the initial period.

Tax Burden

The tax burden remained remarkably consistent throughout the observed period, fluctuating minimally around 0.87-0.88. This suggests a stable effective tax rate and minimal impact from changes in tax regulations or the company’s tax position.

Interest Burden

The interest burden exhibited a slight downward trend, decreasing from 0.98 in 2021 and 2022 to 0.91 in 2024 and 2025. While the change is not substantial, it indicates a potential improvement in the company’s ability to cover its interest expenses, or a reduction in interest-bearing debt. The largest decrease occurred between 2022 and 2023.

EBIT Margin

The EBIT margin experienced a significant decline, moving from 49.62% in 2021 to 35.36% in 2025. This decrease parallels the decline in net profit margin, suggesting that the primary driver of the reduced net profitability is a reduction in operational profitability before accounting for interest and taxes. The most substantial decrease in EBIT margin occurred between 2022 and 2023.

The consistent tax burden suggests that changes in tax rates are not a primary contributor to the declining net profit margin. The slight decrease in the interest burden offers a minor offset, but the substantial decline in the EBIT margin appears to be the dominant factor influencing the overall reduction in net profitability. Further investigation into the factors driving the decrease in EBIT margin would be warranted.