Analog Devices Inc. (NASDAQ:ADI)

The analysis of the financial data reveals significant trends and changes in the company's intangible assets over the reported periods.

Goodwill

There is a marked increase in goodwill from approximately $12.3 billion in 2019 and 2020 to nearly $26.9 billion from 2021 onwards, where it stabilizes through 2024. This jump suggests substantial acquisition activity or reassessment of goodwill in 2021.

Customer Relationships

This intangible asset more than doubles from about $4.7 billion in 2019-2020 to over $10.3 billion starting from 2021, remaining steady through 2024. The persistent high level indicates a sustained value placed on customer-related intangibles since 2021.

Technology-based Intangibles

Technology-based assets increase notably from around $1.15 billion in 2019-2020 to approximately $7.6 billion from 2021 onward, showing a strategic emphasis on technology-related assets aligned with the period of increased goodwill and customer relationships.

Trade-name

The trade-name intangible remains constant at approximately $72 million across all periods, indicating no significant revaluation or acquisitions relating to trade names during this time.

Backlog

Backlog is recorded from 2021 through 2023 at $361.2 million, with no values reported before or after. This may reflect the recognition of backlog assets in those years only, potentially related to specific contractual or project conditions.

Assembled Workforce

Similarly, the assembled workforce intangible is reported as $1.8 million from 2021 through 2024, absent before 2021, suggesting recognition starting in 2021 and consistent valuation since.

In-Process Research and Development (IPR&D)

IPR&D is recognized only in 2021 and 2022 at approximately $28.2 million, with no values before or after. This indicates the presence of ongoing or capitalized research and development activities during that timeframe.

Intangible Assets, Gross Carrying Amount

There is a significant rise in gross intangible assets from roughly $5.9 billion in 2019-2020 to over $18.3 billion in 2021-2023 before a slight decrease to $18.0 billion in 2024. This aligns with the increases observed in individual intangible components starting in 2021.

Accumulated Amortization

Accumulated amortization consistently increases in magnitude (negative value) from about -$1.7 billion in 2019 to -$8.4 billion in 2024, reflecting ongoing amortization expenses on intangible assets over time, with accelerated amortization evident post-2020.

Net Intangible Assets

The net value of intangible assets, after amortization, peaks sharply at roughly $15.3 billion in 2021, followed by a steady decline over subsequent years to around $9.6 billion in 2024. This trend likely indicates significant amortization charges reducing net asset value after the large 2021 additions.

Goodwill and Intangible Assets Combined

The combined total shows a dramatic increase from approximately $16.5 billion in 2019 to over $42.2 billion in 2021, declining gradually to about $36.5 billion by 2024. This pattern underlines a substantial acquisition or revaluation event in 2021, with moderate subsequent depreciation or impairment.

Overall, the data reflect a major acquisition or revaluation event in 2021 that significantly increased goodwill and intangible assets, followed by a period of amortization and gradual decrease in net intangible asset values. The stability in certain intangibles like trade-name, backlog, and assembled workforce from 2021 onward suggests strategic valuations associated with that event. The increases in technology-based and customer relationship assets point to focused investments or acquisitions enhancing key intangible categories.

The data reveals notable trends in both reported and goodwill-adjusted financial figures over the six-year period.

Total Assets

Reported total assets show a substantial increase from 21.39 billion in 2019 to over 52.32 billion in 2021, followed by a gradual decline each year through 2024 to approximately 48.23 billion. The adjusted total assets, which exclude goodwill, reflect a similar pattern but at significantly lower levels, rising from 9.14 billion in 2019 to a peak of 25.40 billion in 2021, then declining steadily to 21.32 billion by 2024. This indicates that a considerable portion of the total assets reported in 2021 is attributable to goodwill, with a subsequent reduction in goodwill or revaluation reflected in the adjusted figures over time.

Shareholders' Equity

For reported shareholders' equity, there is a marked increase from approximately 11.7 billion in 2019 to nearly 38.0 billion in 2021, followed by a consistent yearly decrease to around 35.2 billion in 2024. The adjusted shareholders' equity figures, which remove goodwill effects, start with negative values in 2019 and 2020 (-548 million and -280 million, respectively), reflecting possible goodwill impairments or accounting adjustments. From 2021 onward, the adjusted equity becomes positive and peaks at near 11.1 billion before declining to about 8.27 billion in 2024. This trend implies that goodwill significantly inflated the reported equity in earlier years and that adjustments have moderated the equity values, aligning them more closely with tangible shareholder value.

General Insights

The pronounced peak in 2021 across all reported metrics suggests a major acquisition or asset revaluation event that year, markedly increasing both assets and equity due to goodwill recognition. The subsequent downward trends in both reported and adjusted figures imply either impairments of goodwill, asset disposals, or normalizing valuations. The divergence between reported and adjusted figures emphasizes the substantial impact of goodwill on the company's balance sheet during the period. Adjusted figures provide a more conservative and possibly more realistic view of the company's financial health by isolating the tangible asset and equity base.

Total Asset Turnover

The reported total asset turnover exhibited a declining trend from 0.28 in 2019 to a low of 0.14 in 2021, before recovering somewhat to 0.25 in 2023 and then decreasing again to 0.20 in 2024. The adjusted total asset turnover followed a similar pattern but at higher levels, starting at 0.66 in 2019, falling to 0.29 in 2021, then improving to 0.56 in 2023 and declining to 0.44 in 2024. This indicates a significant decline in asset efficiency around 2021, with partial recovery thereafter, although efficiency remains below the initial levels.

Financial Leverage

Reported financial leverage showed a gradual decrease from 1.83 in 2019 to approximately 1.37 from 2022 through 2024, suggesting a reduction in leverage and potentially lower financial risk under reported figures. In contrast, adjusted financial leverage data, available only from 2021 onward, reveals an increasing trend from 2.29 in 2021 to 2.58 in 2024, indicating that when goodwill adjustments are considered, the company has increased its leverage over recent years.

Return on Equity (ROE)

The reported ROE demonstrates a downward trajectory from 11.64% in 2019 to a low of 3.66% in 2021, followed by improvement to 9.32% in 2023, but then declining again to 4.65% in 2024. The adjusted ROE, available from 2021, presents a markedly different picture: starting at 12.56% in 2021, soaring to a peak of 38.31% in 2023, and then falling to 19.78% in 2024. These discrepancies indicate that adjusting for goodwill significantly impacts the perceived profitability for equity holders, highlighting stronger performance and volatility in profitability metrics after adjustments.

Return on Assets (ROA)

The reported ROA trends align with those of ROE but at lower magnitudes, declining from 6.37% in 2019 to 2.66% in 2021, recovering to 6.79% in 2023, and declining again to 3.39% in 2024. The adjusted ROA, consistently higher than reported ROA, decreased from 14.92% in 2019 to 5.47% in 2021, then notably improved to 15.15% in 2023 before dropping to 7.67% in 2024. This suggests that the company's asset profitability experienced a significant dip around 2021 but showed recovery and subsequent volatility when goodwill adjustments are taken into account.

Overall Observations

The data reveals that asset utilization efficiency and profitability metrics experienced a pronounced decline around 2021 across both reported and adjusted figures, followed by a period of recovery and subsequent fluctuations. Adjustments for goodwill consistently show higher leverage and profitability ratios compared to reported figures, indicating the material impact of intangible asset considerations on financial performance analysis. The trends point to a cyclical or transitional phase for the company with respect to asset usage and financial returns over the analyzed period.

Total Assets (Reported and Adjusted)

The reported total assets show a significant increase from 2019 to 2021, rising from approximately 21.4 billion US dollars to over 52.3 billion US dollars. Following this peak in 2021, there is a consistent decline each year through 2024, reducing to around 48.2 billion US dollars. In contrast, the adjusted total assets, which remove goodwill effects, also exhibit substantial growth from about 9.1 billion in 2019 to 25.4 billion in 2021. However, similarly to the reported figures, the adjusted total assets decline annually thereafter, reaching approximately 21.3 billion US dollars in 2024. Overall, both measures demonstrate a pattern of rapid asset accumulation up to 2021 followed by a steady contraction over the subsequent three years.

Total Asset Turnover Ratios (Reported and Adjusted)

The reported total asset turnover ratio declines from 0.28 in 2019 to 0.14 in 2021, indicating a reduced efficiency in generating sales from assets during this period. However, this trend reverses somewhat in 2022 and 2023, with ratios climbing back to 0.24 and 0.25 respectively, before dropping again to 0.20 in 2024. The adjusted total asset turnover ratio follows a similar initial decline from 0.66 in 2019 to 0.29 in 2021, reflecting a comparable decrease in asset utilization efficiency when excluding goodwill. From 2022 onwards, this ratio improves to 0.51 and 0.56 in 2022 and 2023 respectively, suggesting better operational efficiency, but experiences a decrease to 0.44 in 2024. The fluctuations in both reported and adjusted turnover ratios highlight a period of operational adjustment, with efficiency recovering after 2021 but not consistently sustained through 2024.

Insights and Overall Trends

The data indicates that asset growth, both reported and adjusted, peaked in 2021 after a period of aggressive expansion. The subsequent decline in asset base may suggest divestitures, amortization of intangible assets, or other balance sheet adjustments. Correspondingly, asset turnover ratios reveal reduced efficiency during the growth phase, with a partial recovery in later years. This pattern suggests that recent asset additions may have initially strained operational productivity, but management efforts have led to improvements in utilizing assets more effectively as of 2022 and 2023, although the decline in 2024 points to possible challenges in maintaining those gains.

Total Assets

The reported total assets demonstrate a notable increase from 21.39 billion US dollars in 2019 to a peak of 52.32 billion in 2021, followed by a gradual decline over the next three years to approximately 48.23 billion in 2024. In contrast, the adjusted total assets, which exclude goodwill, follow a similar pattern but with significantly lower absolute values. They increase from about 9.14 billion in 2019 to 25.40 billion in 2021, then decline steadily to 21.32 billion by 2024. This suggests that goodwill constitutes a substantial portion of the total assets, especially around 2021, and the downward trend in adjusted total assets indicates possible asset revaluation or impairment over time.

Shareholders’ Equity

The reported shareholders’ equity sees a dramatic rise from around 11.71 billion in 2019 to a peak of 37.99 billion in 2021, then decreases gradually to about 35.18 billion in 2024. However, the adjusted shareholders’ equity tells a different story: negative values in 2019 and 2020 (-547.7 million and -280.5 million respectively) turn positive by 2021 at approximately 11.07 billion, but then steadily decline through 2024 to 8.27 billion. This reversal and decline in adjusted equity indicate the substantial impact of goodwill on reported equity and possibly point to impairments or write-downs reducing the net asset value when goodwill is excluded.

Financial Leverage

Reported financial leverage decreases marginally over the period from 1.83 in 2019 to 1.37 in 2024, indicating a relatively stable and slightly reduced reliance on debt relative to equity. On the other hand, adjusted financial leverage figures, available only from 2021 onwards, show an increasing trend from 2.29 in 2021 to 2.58 in 2024. This rising adjusted leverage suggests that after excluding goodwill, the company shows greater financial risk or leverage, with liabilities increasing relative to adjusted equity over time.

Overall Insights

The disparity between reported and adjusted figures underscores the significant influence of goodwill on the company's financial statements. The peak in reported assets and equity in 2021, followed by declines, coincides with similar patterns in adjusted figures but reveals the substantial adjustments made for goodwill. The adjusted metrics indicate a shrinking asset base and equity value once goodwill is removed, as well as increasing leverage, implying heightened financial risk or reduced financial flexibility. Consequently, an analysis excluding goodwill reflects a less robust financial position and a trend of increasing leverage that may warrant attention for risk management and valuation purposes.

Shareholders’ Equity Trends

The reported shareholders’ equity displayed an overall increasing trajectory from 2019 to 2021, rising from approximately 11.7 billion US dollars to nearly 38.0 billion US dollars. However, from 2021 onwards, a declining trend is evident, with the equity decreasing to around 35.2 billion US dollars by 2024. The adjusted shareholders’ equity, which accounts for goodwill, reveals a different pattern. Initially negative in 2019 and 2020, it transitioned to positive territory in 2021 at about 11.1 billion US dollars and has since exhibited a gradual decrease, reaching approximately 8.3 billion US dollars in 2024.

Return on Equity (ROE) Trends

Reported ROE showed a decreasing trend from 11.64% in 2019 to a low of 3.66% in 2021, followed by some recovery in 2022 and 2023 (7.54% and 9.32% respectively), but declined again to 4.65% in 2024. In contrast, the adjusted ROE, which adjusts for goodwill effects, began being reported only in 2021. It demonstrated a strong upward trend, rising from 12.56% in 2021 to a peak of 38.31% in 2023. This was followed by a significant decline to 19.78% in 2024, although it remained substantially higher than the reported ROE over the comparable periods.

Insights

The divergence between reported and adjusted shareholders’ equity suggests that goodwill and unrealized assets have a material impact on the company’s equity base. The initial negative adjusted equity indicates significant goodwill or intangible asset write-downs before 2021, which were corrected or amortized subsequently. The sharp increase in adjusted ROE relative to reported ROE from 2021 onwards implies improved operational efficiency or profitability once goodwill distortions are excluded. The volatility in both equity and ROE figures from 2021 onwards points to a period of financial adjustment or restructuring impacting the company's equity quality and returns.

Reported Total Assets

The reported total assets remained relatively stable from 2019 to 2020, with a slight increase from approximately 21.39 billion to 21.47 billion US dollars. There was a notable surge in 2021, jumping to over 52.32 billion US dollars, followed by a gradual decline over the next three years, reaching about 48.23 billion in 2024. This pattern indicates a substantial asset acquisition or revaluation in 2021, which was partially reversed or depreciated in subsequent years.

Adjusted Total Assets

The adjusted total assets, which presumably exclude goodwill, mirror the trend seen in the reported total assets but on a reduced scale. These assets increased significantly in 2021 to over 25.40 billion US dollars from below 9.2 billion in 2020, followed by a consistent decline, finishing at approximately 21.32 billion US dollars in 2024. This suggests that the bulk of the asset growth in 2021 relates to goodwill or intangible assets, with core asset values stabilizing or decreasing in the following years.

Reported Return on Assets (ROA)

The reported ROA experienced fluctuations throughout the period. It started at 6.37% in 2019, dipped to 5.69% in 2020, further decreased to a low of 2.66% in 2021, then recovered to 6.79% by 2023 before declining again to 3.39% in 2024. This volatility indicates variations in profitability relative to total assets, possibly impacted by the large asset base recorded in 2021 and the subsequent changes in operational performance.

Adjusted Return on Assets (ROA)

The adjusted ROA, which excludes goodwill effects, consistently exhibits higher values compared to reported ROA, underscoring stronger operational efficiency when intangible assets are excluded. Starting at 14.92% in 2019, it showed a decline to 13.28% in 2020 and a significant drop to 5.47% in 2021, coinciding with the spike in total assets. It rebounded sharply to 15.15% in 2023 before falling back to 7.67% in 2024. This pattern highlights that core asset profitability is more volatile but generally more robust than the overall reported performance.