Broadcom Inc. (NASDAQ:AVGO)

The analysis of the financial ratios over the reported periods reveals several notable trends.

Return on Assets (ROA)

There is an overall upward trend in ROA from 4.04% in 2019 to a peak of 19.33% in 2023, indicating improved efficiency in generating profit from assets during this period. However, in 2024, ROA sharply declines to 3.56%, suggesting a significant reduction in asset profitability compared to the previous year.

Financial Leverage

The financial leverage ratio shows some fluctuations but remains relatively stable within the range of approximately 2.45 to 3.23 over the periods. Starting at 2.71 in 2019, it peaks at 3.23 in 2022, then decreases to 2.45 in 2024. This suggests a moderate use of debt to finance assets with a slight reduction in leverage in the most recent year.

Return on Equity (ROE)

ROE exhibits a strong upward trajectory from 10.92% in 2019, reaching an extraordinary high of 58.7% in 2023, which may reflect significantly enhanced profitability for shareholders or increased financial leverage effects. However, similar to ROA, ROE plunges to 8.71% in 2024, marking a considerable decline in shareholder returns.

In summary, the company demonstrated improving profitability and efficient use of assets and equity up until 2023. The sudden declines in ROA and ROE in 2024, despite a reduction in financial leverage, suggest potential challenges impacting operational performance or changes in capital structure that warrant further investigation.

Net Profit Margin

The net profit margin exhibited a general upward trend from 2019 to 2023, increasing significantly from 12.05% to a peak of 39.31%. This indicates improved profitability over this period. However, there is a sharp decline in 2024 to 11.43%, which represents a substantial drop compared to the previous year and suggests potential challenges faced during this period.

Asset Turnover

Asset turnover showed moderate fluctuations. It started at 0.33 in 2019, declined slightly in 2020 to 0.31, then increased steadily to reach 0.49 by 2023, indicating enhanced efficiency in utilizing assets to generate revenue. In 2024, asset turnover decreased back to 0.31, aligning with the downturn seen in net profit margin.

Financial Leverage

Financial leverage ratios remained relatively stable with minor variations. It increased from 2.71 in 2019 to a peak of 3.23 in 2022, indicating a greater use of debt financing. Subsequently, it decreased to 2.45 in 2024, suggesting a reduction in reliance on leverage during the most recent period.

Return on Equity (ROE)

Return on equity experienced a pronounced increase from 10.92% in 2019, sharply rising to 58.7% in 2023. This substantial growth reflects improved profitability combined with leverage effects. However, a steep decline to 8.71% in 2024 mirrors the negative trend in net profit margin and asset turnover, indicating a notable decrease in overall shareholder returns.

Tax Burden

The tax burden ratio exhibits a generally declining trend over the six-year period, decreasing from 1.23 in 2019 to 0.61 in 2024. This indicates a reduction in the effective tax rate or improvements in tax efficiency, particularly notable from 2022 onward where the ratio drops below 1 consistently.

Interest Burden

The interest burden ratio initially decreased from 0.61 in 2019 to 0.58 in 2020 but then shows a rising trend up to 0.90 in 2023, followed by a decline to 0.71 in 2024. This pattern suggests fluctuations in interest expense relative to earnings before interest and taxes (EBIT), with increased interest coverage after 2020 before a slight recent weakening.

EBIT Margin

The EBIT margin demonstrates a significant improvement from 16.19% in 2019 to a peak of 46.68% in 2023, reflecting enhanced operational profitability. However, there is a notable decline to 26.36% in 2024, which indicates a reduction in operating efficiency or increased costs in the latest period.

Asset Turnover

Asset turnover remains relatively stable but shows a mild upward trend from 0.33 in 2019 to a peak of 0.49 in 2023, suggesting better utilization of assets to generate sales. The decline back to 0.31 in 2024 indicates a decrease in the efficiency of asset use in the most recent year.

Financial Leverage

Financial leverage increases from 2.71 in 2019 to a high of 3.23 in 2022, which reflects increased use of debt financing during this period. From 2023 onward, leverage declines to 2.45 by 2024, indicating a reduction in reliance on debt and potentially a strengthening of the equity base.

Return on Equity (ROE)

The ROE shows a marked increase from 10.92% in 2019 to a peak of 58.7% in 2023, highlighting improved overall profitability and shareholder returns. However, there is a sharp decline to 8.71% in 2024, corresponding to decreases in EBIT margin, asset turnover, and tax burden, suggesting significant challenges impacting net profitability and equity returns in the latest year.

Net Profit Margin

The net profit margin exhibited a notable overall increase from 12.05% in 2019 to a peak of 39.31% in 2023, indicating improving profitability over this period. However, there is a significant decline to 11.43% in 2024, suggesting a potential erosion of profit efficiency in the most recent year.

Asset Turnover

The asset turnover ratio showed a gradual upward trend from 0.33 in 2019 to a high of 0.49 in 2023, reflecting enhanced efficiency in utilizing assets to generate revenue. This improvement, however, reversed in 2024 when the ratio decreased back to 0.31, indicating a decrease in asset utilization effectiveness.

Return on Assets (ROA)

Return on assets followed a trajectory similar to the net profit margin, rising from 4.04% in 2019 to a peak of 19.33% in 2023. This suggests increased overall profitability relative to asset base over the years. The sharp decline to 3.56% in 2024 points to a significant drop in asset profitability in the latest period.

Tax Burden

The tax burden ratio exhibits a decreasing trend over the six-year period, starting at 1.23 in 2019 and declining to 0.61 by 2024. This indicates a consistently reducing tax impact on pre-tax profits, suggesting improved tax efficiency or changes in tax regulations benefiting the company.

Interest Burden

The interest burden ratio demonstrates some variability, beginning at 0.61 in 2019, dipping slightly to 0.58 in 2020, then increasing to a peak of 0.9 in 2023, before decreasing again to 0.71 in 2024. This pattern reflects fluctuations in the company’s interest expenses relative to earnings before interest and taxes, potentially influenced by varying debt levels or interest rates.

EBIT Margin

EBIT margin shows a significant upward trend from 16.19% in 2019 to 46.68% in 2023, indicating growing operational profitability. However, in 2024, the margin declines sharply to 26.36%. The initial increase suggests enhanced operational efficiency or pricing power, while the drop in 2024 may reflect higher costs, pricing pressures, or other operational challenges.

Asset Turnover

Asset turnover increases from 0.33 in 2019 to a peak of 0.49 in 2023, showing better utilization of assets to generate sales. In 2024, it drops back to 0.31, suggesting a decline in asset efficiency, possibly due to increased asset base without proportional revenue growth or a slowdown in sales.

Return on Assets (ROA)

ROA experiences a strong upward trajectory from 4.04% in 2019 to a high of 19.33% in 2023, indicating improved overall profitability and effective use of assets. However, ROA sharply decreases to 3.56% in 2024, paralleling the declines in EBIT margin and asset turnover, which together suggest a reduction in profitability and asset efficiency in the most recent year.

Tax Burden

The tax burden ratio gradually decreased over the observed periods, starting from 1.23 in late 2019, slightly falling to 1.21 in 2020, and then experiencing a more notable decline to 1.00 in 2021. It further decreased consistently to 0.92 in 2022 and remained relatively stable around 0.93 in 2023 before dropping significantly to 0.61 in 2024. This suggests a trend of reduced tax strain or changes in tax expense relative to pre-tax income in the most recent year.

Interest Burden

The interest burden ratio demonstrated an initial decline from 0.61 in 2019 to 0.58 in 2020, indicating reduced interest expenses relative to EBIT. However, this trend reversed from 2021 to 2023, where the ratio increased steadily from 0.78 to a peak of 0.9, implying higher interest costs affecting earnings before taxes. In 2024, the ratio decreased to 0.71, indicating some easing of interest burden.

EBIT Margin

The EBIT margin showed a strong upwards trajectory from 16.19% in 2019 to a peak of 46.68% in 2023, indicating substantial improvement in operating profitability over the years. However, in 2024, there was a marked decline to 26.36%, pointing to possible operational challenges or increased costs that diminished operating profitability in the most recent period.

Net Profit Margin

Net profit margin followed a similar upward trend to EBIT margin during the initial years, moving from 12.05% in 2019 up to a high of 39.31% in 2023, reflecting increasingly efficient conversion of revenue into net income. Nonetheless, 2024 saw a significant drop to 11.43%, indicating a sharp reduction in overall profitability, potentially linked to higher tax burden, interest expenses, or other factors affecting net earnings.