Cadence Design Systems Inc. (NASDAQ:CDNS)

The analysis of the annual current and deferred income tax expenses reveals distinctive trends over the five-year period ending December 31, 2024.

Current Income Tax Expense

The current income tax expense demonstrates a general increasing trend over the period. Starting at $68.2 million in 2020, it nearly doubled to $115.7 million in 2021. The expense then surged significantly to $304.0 million in 2022, followed by a slight decline to $277.3 million in 2023. The latest figure in 2024 exhibits another substantial increase, reaching $469.1 million. The fluctuations indicate varying taxable income levels or changes in tax regulations affecting current tax liabilities.

Deferred Income Tax Expense

The deferred income tax expense shows a negative value throughout, reflecting deferred tax benefits rather than expenses. The magnitude of these deferred taxes increased notably from -$26.1 million in 2020 to -$43.2 million in 2021 and further expanded to -$107.6 million in 2022. Subsequently, it decreased in absolute terms to -$36.5 million in 2023 but rose again to -$128.7 million in 2024. This pattern suggests significant timing differences in recognizing income and expenses for tax purposes, with variations likely due to changes in temporary differences and tax planning strategies.

Provision for Income Taxes

The provision for income taxes, which represents the total tax expense combining both current and deferred components, has increased markedly from $42.1 million in 2020 to $72.5 million in 2021. This figure then more than doubled to $196.4 million in 2022 and continued its upward momentum to $240.8 million in 2023, culminating in a peak of $340.3 million in 2024. The consistent increase aligns with the upward trend in current tax expenses and indicates overall higher tax charges over the period.

In summary, there has been a significant upward movement in total income tax provisions, primarily driven by rising current tax expenses, despite fluctuations in deferred tax benefits. The variations in deferred tax amounts suggest ongoing adjustments in tax timing differences. The data reflects a dynamic tax environment with increasing tax liabilities over the recent years.

The analysis of the tax-related financial data over the five-year period reveals several notable trends. The statutory federal income tax rate remained constant at 21% throughout the entire duration. In contrast, the effective tax rate exhibited considerable variability and a strong upward trend.

Effective Tax Rate Pattern

Initially, the effective tax rate was significantly lower than the statutory rate, starting at 7% in 2020. It increased moderately to 9% in 2021, followed by a substantial rise to 19% in 2022, where it stabilized through 2023. By 2024, the effective tax rate further increased to 24%, surpassing the statutory federal rate.

Comparison of Statutory and Effective Tax Rates

While the statutory rate was constant, the effective tax rate’s gradual elevation suggests changes in the company's tax position or tax planning strategies. The effective tax rate moving from well below the statutory rate to exceeding it indicates variations in tax credits, deductions, or non-recurring tax impacts were significant in earlier years and have diminished or reversed over time.

Insights and Implications

The upward trajectory of the effective tax rate may imply a shift towards recognizing higher tax expenses relative to pre-tax earnings or a reduction in effective tax benefits. This trend could impact net profitability and cash tax payments, signaling a need for stakeholders to monitor future tax obligations closely.

The financial data for the periods ending December 31, 2020, through December 31, 2024, demonstrate notable trends in tax-related assets, liabilities, and other balance sheet components.

Tax Credit Carryforwards

There is a consistent decline over the five-year period, decreasing from $197.4 million in 2020 to $110.0 million in 2024, indicating utilization or expiration of credits.

Reserves and Accruals

An upward trend is observed, increasing from around $60.3 million in 2020 to $103.7 million in 2024, reflecting growing obligations or anticipated expenses.

Intangible Assets

The gross intangible assets decreased steadily from $578.3 million in 2020 to $487.9 million in 2024, signaling amortization or impairments. Correspondingly, the negative intangible assets (likely accumulated amortization) increased in absolute value from -$44.5 million to -$107.3 million, confirming ongoing amortization.

Capitalized Research and Development Expense for Income Tax Purposes

This item shows significant growth, rising sharply from $39.4 million in 2020 to $368.1 million in 2024, which could represent increased capitalization of R&D costs for tax benefits.

Operating Loss Carryforwards

These grew moderately from $5.9 million in 2020 to $11.1 million in 2022, then decreased slightly to about $9.8 million by 2024, suggesting partial utilization of loss carryforwards.

Deferred Income

Deferred income nearly quadrupled from $21.2 million in 2020 to $79.2 million in 2024, indicating increased revenues received but not yet recognized.

Capital Loss Carryforwards

This category remained relatively stable around $16.9 million, with minor fluctuations, suggesting little change in realized capital losses or utilization.

Stock-Based Compensation Costs

There is a clear upward trajectory, rising from $14.7 million to $34.0 million, reflecting increased equity-based compensation expenses.

Depreciation and Amortization

These expenses rose substantially from $4.4 million in 2020 to $17.2 million in 2024, consistent with increased asset base or accelerated amortization schedules.

Investments

Investments reported a rising trend initially, from $2.5 million in 2020 to $20.8 million in 2024. However, a separate classification of investments shows negative values in 2023 and 2024 (-$6.3 million and -$14.2 million), possibly indicating divestitures or impairments.

Lease Liability and ROU Assets

Lease liabilities fluctuate somewhat but do not show a clear directional trend, decreasing from $31.3 million in 2020 to $27.4 million in 2021, then increasing again to $37.8 million in 2022 before declining slightly thereafter. Right-of-use (ROU) assets correspond in magnitude but are presented as negative values, indicating the same lease obligations from an asset perspective.

Prepaid Expenses

Data shows a peak of $53.9 million in 2021, followed by a sharp decline to $3.3 million by 2023, after which data is missing for 2024. This suggests fluctuations or changes in advance payments during the period.

Deferred Tax Assets

There is a consistent increase in deferred tax assets from $972.3 million in 2020 to $1.28 billion in 2024, highlighting the recognition of tax benefits associated with timing differences or carryforwards.

Valuation Allowance

The valuation allowance decreased in magnitude from -$116.4 million in 2020 to a low of -$70.1 million in 2022, then rose again to -$90.6 million in 2024, indicating adjustments in expected realizability of deferred tax assets.

Net Deferred Tax Assets

The net deferred tax assets (gross deferred tax assets less valuation allowance) increased steadily from $855.9 million in 2020 to $1.19 billion in 2024, reflecting improving tax positions and potential future tax benefits.

Undistributed Foreign Earnings

These negative values increased in absolute terms from -$42.0 million to -$76.0 million, suggesting growing foreign earnings retained overseas, which may have tax implications.

Other Items

Other miscellaneous liabilities or adjustments fluctuated between -$10.7 million and -$7.9 million, with no clear trend.

Deferred Tax Liabilities

Deferred tax liabilities increased from -$128.5 million to -$238.7 million, indicating rising taxable temporary differences or increased future tax obligations.

Net Deferred Tax Assets (Liabilities)

This net figure showed a continuous increase, from $727.4 million in 2020 to $951.7 million in 2024, revealing an overall strengthening in the net deferred tax asset position despite rising liabilities.

In summary, the data illustrate a general strengthening of deferred tax assets and net deferred tax positions over time, driven by increased capitalization of R&D expenses and other timing differences. Reserves and accruals, stock-based compensation, and depreciation/amortization expenses show marked increases, while certain assets like intangible assets decline due to amortization. Lease liabilities and prepaid expenses fluctuate without a definitive trend. The valuation allowance adjustments suggest periodic reassessment of deferred tax asset realizability. Overall, the company appears to be efficiently leveraging tax credits and deferred tax benefits while managing increasing expenses and reserves.

Deferred tax assets

The deferred tax assets have shown a consistent upward trend over the analyzed five-year period. Starting at approximately 732 million USD in 2020, the balance increased each year, reaching nearly 982 million USD by the end of 2024. This steady rise suggests growing temporary differences or potential tax benefits that the company expects to utilize in future periods.

Deferred tax liabilities

The deferred tax liabilities exhibit a more volatile pattern. The liability balance increased from about 4.9 million USD in 2020 to a peak of approximately 14.8 million USD in 2022. In 2023, there was a notable decrease to around 8.8 million USD, followed by a sharp increase to approximately 30.3 million USD in 2024. This fluctuation indicates significant changes in taxable temporary differences, possibly related to changes in accounting estimates or tax regulations affecting the liability recognition.

Total Assets

The reported total assets demonstrated a consistent upward trend from 3,950,785 thousand US dollars in 2020 to 8,974,482 thousand US dollars in 2024, reflecting significant growth over the five-year period. Adjusted total assets, which account for annual reported and deferred income tax adjustments, also increased steadily, rising from 3,218,495 thousand US dollars in 2020 to 7,992,425 thousand US dollars in 2024. Although both reported and adjusted figures exhibited similar directional growth, the adjusted total assets remained consistently lower than the reported values, indicating the effect of tax adjustments on asset valuation.

Total Liabilities

Reported total liabilities increased from 1,457,767 thousand US dollars in 2020 to 4,300,904 thousand US dollars in 2024, with a notable jump between 2023 and 2024. Adjusted total liabilities followed a parallel trajectory, rising from 1,452,833 thousand US dollars in 2020 to 4,270,569 thousand US dollars in 2024. The small difference between reported and adjusted liabilities suggests that income tax adjustments had a limited impact on total liabilities. The sizeable increase in liabilities, especially in the last year, could signal higher obligations or increased borrowing activity in that period.

Stockholders’ Equity

Reported stockholders’ equity showed growth from 2,493,018 thousand US dollars in 2020 to 4,673,578 thousand US dollars in 2024, with a notable acceleration in 2023 and 2024. Adjusted stockholders’ equity also increased but exhibited more fluctuations, rising from 1,765,662 thousand US dollars in 2020 to 3,721,856 thousand US dollars in 2024. The adjusted equity values remained consistently below the reported ones, which is consistent with the impact of deferred tax liabilities or similar adjustments. The growth in equity suggests ongoing value creation and retention of earnings, although the variance between reported and adjusted figures points to the relevance of tax effects on equity measurements.

Net Income

Reported net income increased steadily from 590,644 thousand US dollars in 2020 to 1,055,484 thousand US dollars in 2024, signaling strong profitability improvement. Adjusted net income also rose from 564,527 thousand US dollars in 2020 to 1,004,632 thousand US dollars in 2023, but showed a decline to 926,747 thousand US dollars in 2024. This divergence in the most recent year suggests that income tax adjustments significantly impacted the profitability after tax, reducing adjusted net income relative to the reported figures. Overall, the trend reflects robust earnings growth, tempered by tax-related adjustments especially noticeable in the latest period.

Summary

Overall, the data reveals consistent growth across key financial metrics including assets, liabilities, equity, and net income, over the 2020 to 2024 period. The adjusted figures, accounting for deferred income tax effects, systematically show lower values compared to reported numbers, emphasizing the influence of tax accounting on financial statement presentation. The sharp increases in 2023-2024 in assets, liabilities, and equity merit attention as potential indicators of strategic investment, financing changes, or shifts in operational scale. The decline in adjusted net income in 2024 despite reported growth may reflect tax environment changes or recognition of deferred tax expenses. The company exhibits strong financial expansion with nuanced effects arising from income tax adjustments.

Net Profit Margin Trends

The reported net profit margin shows a generally positive trend from 22.02% in 2020, rising steadily to a peak of 25.46% in 2023 before declining to 22.74% in 2024. The adjusted net profit margin follows a similar pattern but remains consistently lower than the reported figures, peaking at 24.56% in 2023 and then dropping to 19.97% in 2024, indicating some impact from adjustments affecting profit margins in the latest period.

Total Asset Turnover Trends

Reported total asset turnover remains relatively stable around 0.68-0.72 from 2020 through 2023, with a marked decrease to 0.52 in 2024. Adjusted total asset turnover also mirrors this pattern but at higher levels, fluctuating between 0.82 and 0.85 from 2020 to 2023 before falling to 0.58 in 2024. The decline in 2024 suggests reduced efficiency in asset utilization during that year.

Financial Leverage Trends

Reported financial leverage generally increases over the period, moving from 1.58 in 2020 to 1.92 in 2024, though it dips in 2023 to 1.67 before rising again. Adjusted financial leverage consistently exceeds reported figures and shows a similar rising trend, reaching 2.15 in 2024. This reflects an increasing reliance on debt or other leverage factors in the company’s capital structure.

Return on Equity (ROE) Trends

Both reported and adjusted ROE demonstrate growth through 2022 and 2023, with adjusted ROE significantly higher than the reported figures, reaching a high of 39.66% in 2023. However, both metrics decline substantially in 2024 to 22.58% (reported) and 24.9% (adjusted), indicating a downturn in shareholder returns in the most recent year.

Return on Assets (ROA) Trends

Reported ROA improves steadily from 14.95% in 2020 to a peak of 18.36% in 2023 before dropping sharply to 11.76% in 2024. Adjusted ROA follows a similar path, rising to 20.98% in 2023 and then declining to 11.6% in 2024. The results demonstrate a decline in asset profitability during the latest period after years of increasing efficiency.

Overall Analysis

The data reveals an overall trend of improving profitability, asset utilization, and returns from 2020 through 2023, with adjustments generally resulting in slightly more conservative measures than reported figures. The year 2024 marks a reversal, with declines across most metrics including profit margins, asset turnover, ROE, and ROA, indicating challenges in maintaining previous levels of financial performance. Meanwhile, financial leverage trends upward, suggesting increased leverage amid declining profitability and asset efficiency, which may warrant attention regarding financial risk going forward.

The financial data reveals notable trends in both reported and adjusted net income figures, alongside their respective net profit margins over a five-year period.

Reported Net Income

There is a consistent upward trend from 2020 through 2024 in reported net income. Beginning at approximately $590.6 million in 2020, it increases annually, reaching over $1.05 billion by 2024. This growth suggests strong performance and an expanding profitability base during the period.

Adjusted Net Income

Adjusted net income also exhibits growth from 2020 through 2023, starting near $564.5 million and peaking at approximately $1.0 billion in 2023. However, in 2024, there is a decline to about $926.7 million, indicating some form of adjustment impacting the net income negatively in the most recent year.

Reported Net Profit Margin

The reported net profit margin shows an increasing pattern from 22.02% in 2020 to a high of 25.46% in 2023, followed by a decrease to 22.74% in 2024. This reflects improving profitability relative to revenues until 2023, with a moderation in profit margin in the last reported year.

Adjusted Net Profit Margin

The adjusted net profit margin trends upward from 21.04% in 2020 to 24.56% in 2023, indicating enhanced earnings quality after adjustments through most of the period. Yet, similarly to the adjusted net income, it declines sharply to 19.97% in 2024, suggesting increased adjustments or other factors adversely affecting profitability.

Overall, the data indicate strong and steady growth in both reported and adjusted profitability through 2023, with a noticeable weakening in adjusted profitability in 2024 relative to the previous year. The difference between reported and adjusted figures implies that adjustments, potentially related to tax or other non-operational items, have a growing impact, particularly evident in the latest period.

Reported Total Assets

The reported total assets exhibit a steady upward trend from 3,950,785 thousand US dollars in 2020 to 5,669,491 thousand in 2023, followed by a significant increase to 8,974,482 thousand in 2024. This indicates substantial growth in the company's asset base, particularly in the last year measured.

Adjusted Total Assets

The adjusted total assets also show consistent growth from 3,218,495 thousand US dollars in 2020 to 4,789,490 thousand in 2023. A marked increase occurs in 2024, reaching 7,992,425 thousand. The adjusted figures follow the same growth trajectory as the reported assets but are consistently lower, reflecting adjustments likely related to reported and deferred income taxes.

Reported Total Asset Turnover

The reported total asset turnover ratio remains relatively stable around the 0.68 to 0.69 range from 2020 through 2022, showing slight improvement to 0.72 in 2023. However, in 2024, there is a notable decline to 0.52. This suggests that although the company's assets have grown significantly, the efficiency in generating revenue from those assets has decreased sharply in the most recent year.

Adjusted Total Asset Turnover

The adjusted total asset turnover follows a similar pattern to the reported ratio, maintaining values near 0.83 in 2020 through 2022, increasing slightly to 0.85 in 2023, before dropping to 0.58 in 2024. Despite adjustments, the turnover decreases substantially in the latest year, indicating diminished asset utilization effectiveness when factoring in tax adjustments.

The analysis of the annual reported and deferred income tax adjusted financial data reveals discernible trends in both asset base and equity position over the five-year period ending December 31, 2024. The data indicates progressive growth in total assets, stockholders’ equity, and financial leverage metrics, with notable variations between reported and adjusted figures.

Total Assets

The reported total assets show a consistent upward trajectory from approximately 3.95 billion US dollars in 2020 to nearly 8.97 billion US dollars by the end of 2024. The adjusted total assets follow a similar rising trend but remain consistently lower than the reported figures, beginning at about 3.22 billion US dollars and increasing to approximately 7.99 billion US dollars over the same period. This gap suggests significant adjustments primarily related to deferred income tax impacts or other accounting treatments reducing the asset values on an adjusted basis.

Stockholders’ Equity

Reported stockholders’ equity increases steadily from roughly 2.49 billion US dollars in 2020 to around 4.67 billion US dollars in 2024, reflecting strengthening equity capital over the five years. The adjusted stockholders’ equity also exhibits growth but at a comparatively moderated pace, expanding from about 1.77 billion to 3.72 billion US dollars. The adjusted figures trail the reported equity consistently, indicating adjustments that reduce equity, possibly from deferred tax liabilities or other accounting considerations.

Financial Leverage

The reported financial leverage ratio fluctuates moderately, starting at 1.58 in 2020, increasing to 1.87 in 2022, dipping slightly to 1.67 in 2023, and rising again to 1.92 by 2024. This pattern suggests variations in the balance between assets and equity, with an overall incline by the end of the period. The adjusted financial leverage ratio follows a comparable but more pronounced pattern, beginning at 1.82 in 2020, peaking at 2.25 in 2022, then declining to 1.89 in 2023, and increasing again to 2.15 in 2024. The adjusted leverage ratios are consistently higher than the reported ones, reflecting the reduced equity base post-adjustment and implying a relatively greater reliance on liabilities.

In summary, the company demonstrates robust growth in asset size and equity base on both reported and adjusted bases, albeit with adjustments that lower these metrics for deferred tax considerations. The financial leverage trends point to a generally increasing reliance on external financing, especially after adjustment, potentially indicating strategic leveraging to support expansion or other capital needs while maintaining equity growth. The variations between reported and adjusted figures highlight the impact of deferred income tax and other adjustments on the financial structure and risk profile.

The analysis of the financial data demonstrates notable trends in profit, equity, and returns over the five-year period.

Net Income

Both reported and adjusted net income increased steadily from 2020 through 2023. Reported net income rose from approximately $591 million in 2020 to over $1.04 billion in 2023, representing a substantial growth trend. Adjusted net income follows a similar upward path, growing from $565 million to nearly $1 billion during the same period. However, in 2024, reported net income slightly increased further, while adjusted net income declined to about $927 million, indicating a divergence in these two measures in the latest period.

Stockholders’ Equity

Reported stockholders’ equity rose significantly year-over-year, moving from approximately $2.49 billion in 2020 to $4.67 billion in 2024. Adjusted stockholders’ equity showed a similar upward trajectory but at consistently lower values compared to reported figures, aligning with adjustments made. The adjusted equity grew from approximately $1.77 billion in 2020 to $3.72 billion in 2024, indicating steady equity accumulation but highlighting differences due to adjustments.

Return on Equity (ROE)

Reported ROE increased from 23.69% in 2020 to a peak near 30.93% in 2022, maintaining a similar level in 2023 before dropping noticeably to 22.58% in 2024. Adjusted ROE displayed a similar pattern but at higher levels, rising from 31.97% in 2020 to a peak of 39.66% in 2023, followed by a decline to 24.9% in 2024. This indicates that while profitability relative to equity improved significantly for most of the period, the year 2024 experienced a marked reduction in efficiency of equity utilization.

Overall, the data reveals consistent growth in net income and equity through 2023, accompanied by improving returns on equity. The first year of the latest period, 2024, shows some weakening in both adjusted profitability and returns despite continuing growth in reported net income and equity, suggesting potential impacts from tax adjustments or operational factors that affected the adjusted financial outcomes more distinctly.

The data reveals several notable trends in the company's financial performance over the five-year period.

Net Income

Reported net income shows a consistent upward trend from 590.6 million US dollars in 2020 to 1.055 billion US dollars in 2024, with the largest absolute increase occurring between 2022 and 2023. Adjusted net income also increases overall from 564.5 million in 2020 to peak at just over 1 billion in 2023, but then declines to approximately 927 million in 2024. This divergence in 2024 suggests some adjustments had a negative impact on net income in the latest period.

Total Assets

Both reported and adjusted total assets exhibit steady growth throughout the period. Reported total assets rise from roughly 3.95 billion US dollars in 2020 to nearly 9 billion in 2024, more than doubling over five years. Adjusted total assets grow from 3.22 billion in 2020 to nearly 8 billion in 2024, also showing substantial expansion, though consistently lower than reported values, reflecting the impact of adjustments on asset valuation. The increases in asset base appear especially pronounced in the last period, indicating accelerated investment or asset accumulation.

Return on Assets (ROA)

Reported ROA trends upward from 14.95% in 2020, peaking at 18.36% in 2023, before dropping sharply to 11.76% in 2024. Similarly, adjusted ROA increases from 17.54% in 2020 to a peak of 20.98% in 2023, then declines to 11.6% in 2024. The peak in 2023 represents the period of highest efficiency in generating net income from assets. However, the notable decrease in ROA in 2024 for both reported and adjusted figures indicates a significant reduction in income relative to asset size, likely driven by the slower growth or decline in adjusted net income paired with continued asset growth.

Overall, while the company demonstrated strong and improving profitability and asset growth through 2023, the year 2024 shows signs of flattening or reversing trends in income generation efficiency. The substantial increase in assets coupled with the decrease in adjusted net income and ROA suggests that recent investments or asset acquisitions have not yet translated into proportionate income growth. This development warrants further investigation to understand the drivers behind the decline in adjusted earnings and profitability ratios.