Applied Materials Inc. (NASDAQ:AMAT)

The analysis of the quarterly financial data reveals several distinct trends in the company’s key profitability and leverage metrics over the reported periods.

Return on Assets (ROA)

ROA demonstrates an overall upward trend from early 2020 through early 2022, increasing from 14.3% to a peak of approximately 26.54%. After reaching this high point, the ROA experiences a gradual decline, stabilizing around the low 20% range in the subsequent quarters. This suggests that asset efficiency improved significantly over the initial years but has softened moderately in recent periods.

Financial Leverage

Financial leverage ratios show a decreasing pattern across the dataset. Starting from about 2.28 in early 2020, the leverage ratio steadily declines to approximately 1.75 by mid-2025. This consistent reduction in leverage indicates a trend towards lower reliance on debt or liabilities relative to equity, reflecting potentially more conservative financing or stronger equity support in the capital structure.

Return on Equity (ROE)

ROE exhibits a pronounced increase from 32.64% at the beginning of 2020 to a peak above 58% by mid-2022, indicating strong profitability on shareholders’ equity during this timeframe. However, after this peak, ROE declines steadily to around 35% by mid-2025. Despite the decrease, the levels remain relatively high, suggesting continued robust returns on equity albeit with reduced intensity compared to peak performance.

In summary, the company showed substantial improvement in asset profitability and shareholder returns through 2022, accompanied by a gradual reduction in financial leverage. The post-2022 period indicates a moderation in profitability metrics, with both ROA and ROE trending downward yet remaining at healthy levels, while financial leverage continues to decline, signaling a potentially more conservative financial posture.

Net Profit Margin

The net profit margin exhibited a generally upward trend from early 2020 through early 2022, increasing from 18.83% to a peak of 27.2%. From this peak onward, there was a gradual decline and fluctuations, with margins hovering around the mid-20% range, ending at 23.88% in mid-2025. This pattern indicates an improvement in profitability initially, followed by some pressure on margins in the more recent periods.

Asset Turnover

Asset turnover started at 0.76 in early 2020 and displayed some volatility but a general increase until early 2022, reaching 0.98. After this peak, asset turnover gradually declined, falling to around 0.79 by early 2025, before showing slight recovery to 0.84. This suggests that the efficiency in utilizing assets to generate revenue improved initially but then weakened in later periods.

Financial Leverage

Financial leverage decreased steadily over the observed periods, moving from 2.28 in early 2020 down to 1.75 by mid-2025. This consistent reduction reflects a gradual deleveraging or a lower reliance on debt financing, which could imply a more conservative capital structure or improved equity levels.

Return on Equity (ROE)

ROE demonstrated a strong upward trend from 32.64% in early 2020 to a significant peak above 58% in mid-2022, indicating enhanced profitability and efficient use of equity. After this peak, ROE declined progressively to approximately 35% by mid-2025. Despite the decline, returns remained at a relatively high level, suggesting sustained profitability albeit with some erosion over time. The reduction in financial leverage combined with declining asset turnover may have contributed to this downward trend in ROE after its peak.

Tax Burden

The tax burden ratio generally remained stable around the mid to high 0.8 range from early 2020 through early 2024. However, a declining trend is observed in the last several quarters, dropping from approximately 0.88 to 0.77 by mid-2025, indicating a relative decrease in net income after taxes compared to earnings before tax.

Interest Burden

The interest burden ratio maintained a consistently high level, starting at 0.93 in early 2020 and improving slightly to a steady 0.97 from late 2021 onward. This suggests a stable and relatively low interest expense burden on earnings before interest and taxes across the period.

EBIT Margin

EBIT margins showed a positive upward trend during 2020 and most of 2021, rising from 24.12% to a peak near 32.28% by the first half of 2024. After this peak, margins experienced minor fluctuations but remained elevated above 29%, pointing to improved operational efficiency and profitability over the period.

Asset Turnover

Asset turnover increased gradually from 0.76 in early 2020 to a peak around 0.98 in early 2022, indicating better utilization of assets to generate revenue. Subsequently, a gradual decline is noticed through mid-2025 down to approximately 0.84, suggesting a slight decrease in asset efficiency in the more recent quarters.

Financial Leverage

Financial leverage ratios exhibited a declining pattern from 2.28 in early 2020 to about 1.75 by mid-2025. This trend reflects a reduction in reliance on debt financing or lower overall leverage, possibly indicating a conservative capital structure approach over time.

Return on Equity (ROE)

ROE improved significantly from 32.64% in early 2020 to a peak of 58.35% in mid-2022, driven by enhanced profitability and operational metrics. After reaching this high, ROE trended downward to around 35% by mid-2025, which aligns with the decreasing financial leverage and the slight reduction in asset turnover and tax burden effects.

Net Profit Margin

The net profit margin exhibited an overall increasing trend beginning at 18.83% and peaking at 27.74% in October 2024. Notably, there was a steady rise from early 2020 through early 2022, indicating improved profitability. Following the peak, a slight decline occurred through early 2025, ending near 23.88%, which suggests some recent pressure on profit margins.

Asset Turnover

Asset turnover started at 0.76 and showed a gradual increase, reaching a high of around 0.98 in May 2022. This improvement indicates enhanced efficiency in utilizing assets to generate revenue during this time. From mid-2022 onward, asset turnover gradually declined, stabilizing around 0.84 by mid-2025, which may reflect changes in asset utilization or revenue generation effectiveness.

Return on Assets (ROA)

The return on assets mirrored the trends seen in net profit margin and asset turnover, rising from 14.3% initially to a peak of 26.54% in May 2022. This increasing ROA signifies improved overall profitability relative to asset base. Subsequently, ROA declined steadily to approximately 19.97% by mid-2025, aligning with the observed decreases in profit margin and asset turnover.

Overall Insights

The company demonstrated a solid improvement in profitability and asset efficiency over the first two years, culminating in peak financial performance around early to mid-2022. However, since then, a modest decline across key profitability and efficiency metrics has been evident, suggesting recent challenges impacting the ability to maintain peak operating efficiency and profit margins. These trends underscore cyclical or external factors influencing performance, which may warrant further investigation to address the causes of the downturn in recent periods.

The analysis of quarterly financial ratios reveals notable trends in the company's profitability and operational efficiency over the examined periods.

Tax Burden

The tax burden ratio generally hovered around the mid to high 0.80s throughout most of the timeline, indicating a consistent proportion of earnings retained after tax. However, a declining trend is observed toward the latter periods, dropping from approximately 0.88 in early 2022 to around 0.77 by mid-2025. This suggests an increasing effective tax rate or lower after-tax income relative to pre-tax earnings in recent quarters.

Interest Burden

The interest burden ratio showed remarkable stability, maintaining a tight range between 0.93 and 0.97 across all quarters. This stability implies consistent control over interest expenses relative to earnings before interest and taxes, reflecting a steady financing cost structure without significant deterioration or improvement in interest expenses impacting profitability.

EBIT Margin

The EBIT margin demonstrated a steady upward trajectory from just above 24% in early 2020 to a peak exceeding 32% in 2024, indicating improving operational profitability. Despite some fluctuations near the end of the period, the margin remained robust around 29-32%. The rising margin over the years reflects improved efficiency or higher-margin products/services contributing to core earnings.

Asset Turnover

The asset turnover ratio increased from 0.76 in early 2020 to near 0.98 by mid-2022, showing improved efficiency in utilizing assets to generate sales. However, a gradual decline followed, falling to about 0.84 by mid-2025. This recent decrease may signal challenges in asset utilization or slower sales growth relative to asset base expansion in recent quarters.

Return on Assets (ROA)

ROA mirrored the trends in EBIT margin and asset turnover, initially rising from around 14.3% to a peak near 26.5% in mid-2022, reflecting enhanced profitability and asset use. Post-peak, ROA experienced a moderate downward shift, stabilizing around 20% by mid-2025. This pattern indicates that despite high operational margins, the recent decline in asset turnover has exerted downward pressure on overall asset efficiency and returns.

In summary, the company displayed strong improvements in operational profitability and asset utilization through 2022, with EBIT margin and ROA reaching notable highs. Nonetheless, the recent quarters suggest emerging challenges, including increasing tax burden and declining asset turnover, which have weighed on returns. Interest expenses remained well-managed and stable throughout the entire period.

The analysis of the financial ratios over the observed quarterly periods reveals several notable trends in profitability and efficiency.

Tax Burden

The tax burden ratio remained relatively stable between 0.83 and 0.89 from early 2020 through late 2024, indicating consistent effective tax rates during this period. However, starting from early 2025, a downward trend is observable, with the ratio declining to 0.77 by the third quarter of 2025. This suggests a lower tax expense relative to pre-tax income in the most recent quarters, potentially reflecting changes in tax strategy or legislation.

Interest Burden

The interest burden ratio consistently increased marginally from 0.93 at the start of 2020 to a steady 0.97 from late 2020 onward through 2025. This indicates improved control over interest expenses relative to earnings before interest and taxes, implying that interest costs have become a less significant detractor to profitability over the full period.

EBIT Margin

There was a clear upward trajectory in the EBIT margin during 2020 and 2021, rising from approximately 24.1% to a peak above 32% in mid-2024, showcasing improved operating efficiency and profitability from core operations. Following this peak, a slight decline and volatility appeared in late 2024 and early 2025, with margins fluctuating around the 30-32% range. Nevertheless, the long-term trend reflects strengthening operating performance over the analyzed timeframe.

Net Profit Margin

Net profit margin followed a similar pattern to the EBIT margin but with a more gradual increase from roughly 18.8% in early 2020 up to a high of nearly 27.7% in mid-2024. This improvement signifies enhanced bottom-line profitability, potentially driven by operating gains and stable interest and tax expenses. However, into 2025, a noticeable decrease occurred, with net margins receding to approximately 23.9% by the third quarter, indicating some pressure on net earnings despite previously positive momentum.

Overall, the financial data indicate that the company experienced progressive enhancement in operational profitability and cost control from 2020 through 2024, with consistent management of interest expenses and stable effective tax rates for much of the period. The recent quarters in 2025 show a reduction in tax burden but also a dip in both EBIT and net profit margins, which may warrant further analysis to identify underlying causes such as expense increases, revenue changes, or external economic factors.