Common-Size Income Statement
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Cadence Design Systems Inc., common-size consolidated income statement
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
The common-size income statement reveals several noteworthy trends between 2021 and 2025. Revenue composition shifted modestly, with a slight decrease in the proportion derived from product and maintenance revenue and a corresponding increase in services revenue. While product and maintenance consistently represent the vast majority of revenue, the services segment gained traction, reaching nearly 9% of revenue by 2025.
- Revenue and Cost Structure
- The cost of revenue experienced a consistent increase as a percentage of revenue, rising from 10.27% in 2021 to 13.64% in 2025. This increase outpaced the growth in services revenue, impacting gross margin. Consequently, gross margin declined from 89.73% in 2021 to 86.36% in 2025, although it remained relatively high overall.
- Operating Expenses
- Marketing and sales expenses decreased steadily as a percentage of revenue, indicating improved efficiency in sales and marketing efforts. Research and development expenses remained relatively stable, consistently representing a significant portion of revenue, around 33-35%. General and administrative expenses showed a slight increase initially, then stabilized. Amortization of acquired intangibles also decreased over the period.
- Profitability – Income from Operations
- Income from operations as a percentage of revenue initially increased from 26.07% to 30.59% before declining to 28.17% in 2025. This suggests a period of improving operational efficiency followed by a recent softening, likely influenced by the rising cost of revenue. Restructuring expenses were minimal until 2024 and 2025, when they became more substantial, contributing to the decline in operational income.
- Non-Operating Items
- Interest expense increased significantly over the period, while interest income also rose, partially offsetting the expense. Gains (losses) on investments and securities exhibited volatility, with a notable positive impact in 2023 and 2024. Losses on foreign exchange became more pronounced in 2025. Other income (expense), net, showed a positive trend, contributing to income before taxes.
- Net Income and Taxes
- The provision for income taxes increased substantially as a percentage of revenue, from 2.43% in 2021 to 7.80% in 2025. This, combined with the slight decline in income before taxes, resulted in a decrease in net income as a percentage of revenue, falling from 23.29% in 2021 to 20.94% in 2025. The effective tax rate increased significantly over the period.
Overall, the period demonstrates a company with strong revenue generation and initially robust profitability. However, increasing costs of revenue and a rising tax burden have exerted downward pressure on net income in recent years. The shift in revenue composition towards services may represent a strategic move, but its impact on overall profitability requires continued monitoring.