Adobe Inc. (NASDAQ:ADBE)

Solvency ratios indicate a shifting risk profile over the analyzed period. Initially, the company demonstrated a relatively stable solvency position, but a clear trend towards increased leverage emerges in the later years. While interest and fixed charge coverage remain adequate, the increasing debt levels warrant attention.

Debt Ratios

Debt to equity, debt to capital, and debt to assets all exhibit an increasing trend from 2023 onwards. Debt to equity rises from 0.22 in 2023 to 0.53 in 2025. Similarly, debt to capital increases from 0.18 to 0.35 over the same period. Debt to assets also shows an upward trajectory, moving from 0.12 to 0.21. Inclusion of operating lease liabilities consistently results in higher ratios, suggesting these obligations contribute significantly to the company’s overall debt position. The increases indicate a greater reliance on debt financing.

Leverage Ratio

Financial leverage demonstrates a consistent increase, starting at 1.83 in 2020 and reaching 2.54 in 2025. This signifies a growing proportion of assets financed by debt, amplifying both potential returns and risks. The upward trend parallels the increases observed in the other debt ratios.

Coverage Ratios

Interest coverage declines from a high of 61.17 in 2023 to 34.21 in 2025. While still representing a substantial ability to meet interest obligations, the downward trend is notable. Fixed charge coverage also experiences a decline, albeit less pronounced, from 30.56 to 25.40 over the same period. These decreases are likely a consequence of the increasing debt burden, as earnings must cover a larger interest expense and fixed charges.

In summary, the company’s solvency position has become more leveraged between 2023 and 2025. While coverage ratios remain healthy, the increasing debt levels and associated trends suggest a potential increase in financial risk. Continued monitoring of these ratios is recommended.

The debt to equity ratio exhibits a fluctuating pattern over the observed period. Initially, the ratio decreased from 0.31 in 2020 to 0.28 in 2021, indicating a relative increase in stockholders’ equity compared to total debt. A slight increase to 0.29 was noted in 2022, followed by a more substantial decrease to 0.22 in 2023, suggesting improved solvency. However, the ratio began to climb again in subsequent years, reaching 0.40 in 2024 and further increasing to 0.53 in 2025. This recent upward trend signals a growing reliance on debt financing relative to equity.

Debt to Equity Ratio - Overall Trend

The debt to equity ratio demonstrates an initial period of stability and improvement, followed by a marked increase in the most recent two years. The ratio moved from a low of 0.22 in 2023 to 0.53 in 2025, representing a significant shift in the company’s capital structure.

Debt to Equity Ratio - 2020-2023

From 2020 through 2023, the ratio generally trended downwards. This suggests the company was effectively managing its debt levels or experiencing growth in equity, or a combination of both. The decrease in 2023 is the most pronounced, indicating a substantial improvement in the company’s financial leverage during that year.

Debt to Equity Ratio - 2024-2025

The period from 2024 to 2025 shows a clear upward trend in the debt to equity ratio. This indicates an increase in the proportion of debt used to finance the company’s assets relative to equity. The increase from 0.40 to 0.53 suggests a potential shift in financing strategy or increased investment funded by debt.

The observed increase in the debt to equity ratio in 2024 and 2025 warrants further investigation to determine the underlying reasons and potential implications for the company’s financial risk profile.

The debt to equity ratio, including operating lease liability, demonstrates a fluctuating pattern over the observed period. Initially, the ratio decreased from 0.35 in 2020 to 0.32 in 2021, before stabilizing around 0.33 in 2022. A notable decrease to 0.25 was recorded in 2023, indicating a strengthening of the equity position relative to debt. However, this trend reversed in subsequent periods, with the ratio increasing to 0.43 in 2024 and further to 0.57 in 2025. This recent increase suggests a growing reliance on debt financing or a decrease in stockholders’ equity.

Total Debt (including operating lease liability)

Total debt exhibited a slight decrease from 2020 to 2023, moving from US$4,708 million to US$4,080 million. A significant increase is then observed, rising to US$6,056 million in 2024 and continuing to US$6,648 million in 2025. This indicates a substantial increase in debt obligations in the latter part of the period.

Stockholders’ Equity

Stockholders’ equity generally increased from 2020 to 2023, rising from US$13,264 million to US$16,518 million. However, equity then decreased to US$14,105 million in 2024 and further declined to US$11,623 million in 2025. This reduction in equity, coupled with the increasing debt, contributes to the rising debt to equity ratio.

Debt to Equity Ratio Trend

The initial decline in the debt to equity ratio between 2020 and 2023 suggests improved financial leverage. However, the subsequent increase in the ratio from 2023 to 2025 signals a shift towards greater financial risk. The ratio’s movement in 2024 and 2025 warrants further investigation to understand the underlying drivers of increased debt and decreased equity.

The combined effect of increasing debt and decreasing equity is a notable increase in the debt to equity ratio over the most recent two years. This trend should be monitored closely as a continued rise could indicate increasing financial vulnerability.

The debt to capital ratio exhibits a fluctuating pattern over the observed period. Initially, the ratio decreased from 0.24 in 2020 to 0.22 in 2021, indicating a relative decrease in debt compared to capital. A slight increase to 0.23 was then recorded in 2022 before a notable decline to 0.18 in 2023, suggesting improved solvency. However, this trend reversed in subsequent periods, with the ratio increasing to 0.29 in 2024 and further to 0.35 in 2025. This recent increase signals a growing reliance on debt financing relative to the company’s capital base.

Total Debt

Total debt remained relatively stable between 2020 and 2022, fluctuating around US$4.1 billion. A decrease was observed in 2023, falling to US$3.634 billion, before increasing significantly to US$5.628 billion in 2024 and continuing to US$6.210 billion in 2025. This indicates a recent and substantial increase in the company’s debt obligations.

Total Capital

Total capital generally increased from US$17.381 billion in 2020 to US$20.152 billion in 2023. However, it experienced a slight decrease to US$19.733 billion in 2024 and a more pronounced decrease to US$17.833 billion in 2025. This suggests a contraction in the company’s capital base in the most recent periods.

Debt to Capital Ratio – Overall Trend

The initial decline in the debt to capital ratio between 2020 and 2023 suggested strengthening financial leverage. However, the subsequent increases in 2024 and 2025, driven by rising debt and declining capital, indicate a weakening solvency position. The ratio’s movement from 0.18 in 2023 to 0.35 in 2025 represents a significant shift and warrants further investigation into the reasons behind the increased debt and reduced capital.

The observed trend suggests a potential increase in financial risk, as the company is becoming more reliant on debt to finance its operations and growth. Continued monitoring of these ratios is recommended to assess the sustainability of this trend.

The debt to capital ratio, including operating lease liabilities, demonstrates a fluctuating pattern over the observed period. Initially, the ratio decreased from 0.26 in 2020 to 0.24 in 2021, indicating a relative decrease in debt compared to capital. A slight increase to 0.25 was then recorded in 2022, followed by a more substantial decrease to 0.20 in 2023. However, beginning in 2023, the ratio began to climb, reaching 0.30 in 2024 and continuing to 0.36 in 2025.

Total Debt (including operating lease liability)

Total debt exhibited a generally stable pattern between 2020 and 2023, fluctuating around the US$4.6-4.7 billion range before increasing significantly to US$6.056 billion in 2024 and further to US$6.648 billion in 2025. This suggests an increased reliance on debt financing in the latter part of the period.

Total Capital (including operating lease liability)

Total capital showed an increasing trend from 2020 to 2023, moving from US$17.972 billion to US$20.598 billion. However, capital decreased to US$20.161 billion in 2024 and then to US$18.271 billion in 2025. This decrease in capital, coupled with the increase in debt, is a primary driver of the rising debt to capital ratio.

Debt to Capital Ratio Trend

The initial decline in the debt to capital ratio between 2020 and 2021 suggests improved financial leverage. The subsequent decrease in 2023 indicates a strengthening capital structure relative to debt. However, the pronounced increase in the ratio from 2023 to 2025 signals a shift towards greater financial leverage, potentially increasing financial risk. The combined effect of increasing debt and decreasing capital is the primary cause of this trend.

The observed increase in the debt to capital ratio in the most recent years warrants further investigation to understand the underlying reasons for the increased debt and decreased capital, and to assess the potential implications for the company’s financial health.

The debt-to-assets ratio exhibits a fluctuating pattern over the observed period. Initially, the ratio decreased from 0.17 in 2020 to 0.15 in both 2021 and 2022, indicating a diminishing proportion of assets financed by debt. This trend reversed in 2023, with the ratio declining further to 0.12, suggesting a strengthening of the company’s financial position with reduced reliance on debt.

Recent Trends

However, a notable shift occurred in 2024, as the debt-to-assets ratio increased to 0.19. This rise continued into 2025, reaching 0.21, signifying an increasing level of debt relative to assets. This represents the highest ratio observed within the analyzed timeframe.

The increase in the ratio during the latter two years suggests a potential change in the company’s capital structure, possibly involving increased borrowing to fund operations or investments. While the initial decline in the ratio indicated improved solvency, the recent upward trend warrants further investigation to determine the underlying reasons and potential implications for the company’s financial risk.

Overall Observation

The company’s reliance on debt financing, as measured by the debt-to-assets ratio, has increased significantly in the most recent two years after a period of relative stability and even decline. This shift should be considered in the context of broader financial performance and industry trends.

The fluctuations in the ratio highlight the dynamic nature of the company’s financial leverage and the importance of ongoing monitoring to assess its solvency position.

The debt to assets ratio, including operating lease liability, demonstrates a fluctuating pattern over the observed period. Initially, the ratio decreased from 0.19 in 2020 to 0.17 in both 2021 and 2022, indicating a relative decrease in leverage. This trend reversed in 2023, with the ratio declining further to 0.14. However, a notable increase is observed in subsequent years, reaching 0.20 in 2024 and continuing to 0.23 in 2025.

Total Debt Trend

Total debt, inclusive of operating lease liabilities, remained relatively stable between 2020 and 2023, fluctuating within a narrow range. A significant increase is then observed in 2024 and 2025, rising from US$4,080 million to US$6,648 million. This suggests a deliberate increase in debt financing during these periods.

Total Assets Trend

Total assets exhibited an upward trend from 2020 to 2023, increasing from US$24,284 million to US$29,779 million. While assets continued to grow in 2024 to US$30,230 million, a slight decrease to US$29,496 million is noted in 2025. This suggests a potential stabilization or minor contraction of the asset base in the most recent period.

Debt to Assets Ratio – Overall Interpretation

The initial decline in the debt to assets ratio indicated improving solvency and a lower reliance on debt financing relative to the company’s asset base. The subsequent increase in the ratio, particularly in 2024 and 2025, suggests a shift towards greater leverage. While the ratio remains below 0.25, the upward trajectory warrants monitoring to assess potential impacts on financial risk and future financial flexibility.

The combined effect of relatively stable debt levels for the first three years, followed by a substantial increase, and a moderate asset fluctuation, drives the observed changes in the debt to assets ratio. The increasing ratio in the latter years suggests a growing proportion of assets are financed by debt.

An examination of the financial leverage of the company reveals a generally increasing trend over the observed period, with some fluctuation. Initially, the ratio remained relatively stable before exhibiting a more pronounced increase in later years.

Financial Leverage Trend

The financial leverage ratio stood at 1.83 in Nov 27, 2020, and experienced a slight increase to 1.84 in Dec 3, 2021. A further increase was noted in Dec 2, 2022, reaching 1.93. The ratio decreased slightly to 1.80 in Dec 1, 2023, before rising significantly to 2.14 in Nov 29, 2024. The most substantial increase occurred between Nov 29, 2024, and Nov 28, 2025, with the ratio reaching 2.54.

The observed increase in financial leverage suggests a growing reliance on debt financing relative to equity. While a moderate level of financial leverage can amplify returns to shareholders, a consistently increasing ratio warrants further investigation into the company’s debt structure, interest coverage, and overall financial risk. The substantial increase in the most recent period is particularly noteworthy and may indicate a significant shift in the company’s capital structure.

Relationship to Equity and Assets

The increase in financial leverage appears to coincide with fluctuations in stockholders’ equity. While total assets generally increased over the period, stockholders’ equity decreased from 14,797 in Dec 3, 2021, to 11,623 in Nov 28, 2025. This decrease in equity, coupled with the increase in total assets, likely contributes to the observed rise in the financial leverage ratio.

Continued monitoring of this ratio is recommended, alongside analysis of related solvency metrics, to assess the company’s ability to meet its long-term obligations and maintain financial stability.

The interest coverage ratio demonstrates a generally positive trend from 2020 to 2023, followed by a decline in the most recent two periods. Earnings before interest and tax (EBIT) consistently increased over the initial four years, while interest expense remained relatively stable. This combination resulted in a strengthening ability to cover interest obligations. However, the trend reverses in the latter periods as interest expense increases at a faster rate than EBIT.

Overall Trend

The interest coverage ratio exhibited a substantial increase from 37.00 in 2020 to 61.17 in 2023, indicating a progressively stronger capacity to meet interest payments. This positive trajectory suggests improved profitability relative to interest-bearing debt. A subsequent decline is observed in 2024 and 2025, with the ratio decreasing to 42.01 and 34.21 respectively.

EBIT Analysis

EBIT increased from US$4,292 million in 2020 to US$6,912 million in 2023, representing a significant growth in operating profitability. The rate of increase slows in 2024 and 2025, with EBIT reaching US$7,100 million and US$8,997 million respectively. While still positive, the slower growth in EBIT contributes to the declining interest coverage ratio in the later periods.

Interest Expense Analysis

Interest expense remained relatively consistent between 2020 and 2023, fluctuating between US$112 million and US$116 million. A notable increase is observed in 2024, rising to US$169 million, and continuing to increase to US$263 million in 2025. This increase in interest expense is the primary driver of the declining interest coverage ratio.

Ratio Implications

The declining interest coverage ratio in 2024 and 2025, despite continued EBIT growth, suggests increasing financial risk. While the ratio remains above 30, the downward trend warrants monitoring. The increasing interest expense, relative to EBIT, indicates a potentially less favorable debt structure or higher borrowing costs.

The company demonstrates a consistently strong ability to meet its fixed financial obligations, as indicated by the fixed charge coverage ratio. Over the observed period, earnings before fixed charges and tax have generally increased, contributing to a favorable trend in coverage.

Earnings Before Fixed Charges and Tax

Earnings before fixed charges and tax exhibited an upward trajectory from US$4,411 million in 2020 to US$7,206 million in 2023. A further increase to US$9,092 million is projected by 2025. This growth suggests improving operational profitability and the capacity to service fixed obligations.

Fixed Charges

Fixed charges remained relatively stable between 2020 and 2023, fluctuating between US$230 million and US$235 million. However, a notable increase is anticipated, rising to US$275 million in 2024 and US$358 million in 2025. This suggests potential increases in debt servicing costs or other fixed financial commitments.

Fixed Charge Coverage Ratio

The fixed charge coverage ratio increased substantially from 18.77 in 2020 to a peak of 30.56 in 2023. While remaining at a high level, the ratio experienced a slight decrease to 26.20 in 2024 and is projected to further decline to 25.40 in 2025. This decrease, despite continued earnings growth, is attributable to the anticipated rise in fixed charges. Nevertheless, the ratio remains comfortably above 1, indicating a robust capacity to cover fixed obligations even with the projected increases.

Despite the projected increase in fixed charges, the company’s earnings growth is expected to maintain a strong coverage position. The observed trend suggests a financially healthy position with respect to fixed obligations, although continued monitoring of both earnings and fixed charge levels is warranted.