Cadence Design Systems Inc. (NASDAQ:CDNS)

The financial data shows a pattern of growth in net operating profit after taxes (NOPAT) over the five-year period. The NOPAT increased steadily from approximately 708 million US dollars in 2020 to about 1.03 billion US dollars in 2024. This consistent upward trend indicates improving operational profitability before accounting for financing costs and taxes.

Invested capital also exhibited a continuous increase throughout the period, starting at roughly 2.83 billion US dollars in 2020 and reaching over 7.25 billion US dollars by 2024. The sharp rise in invested capital from 2023 to 2024, which is more pronounced than in previous years, suggests significant capital investment or asset acquisition during the latest year, which may impact returns.

Return on invested capital (ROIC), however, reveals a declining trend, particularly in the most recent year. From a high point of around 25.05% in 2020, ROIC gradually decreased to below 15% by 2024. This decline in ROIC despite the growth in NOPAT suggests that the increase in invested capital has outpaced profitability gains, indicating lower efficiency in utilizing capital to generate profits in the latest year compared to earlier periods.

Summary of Key Trends

Net operating profit after taxes (NOPAT) increased consistently, showing improvements in operational profitability.

Invested capital steadily increased, with a notable acceleration in growth in the final year.

Return on invested capital (ROIC) declined over the period, especially sharply in 2024, implying a reduction in capital efficiency despite higher absolute profits.

The financial data indicates several notable trends over the five-year period from December 31, 2020, to December 31, 2024.

Operating Profit Margin (OPM)

The operating profit margin shows a generally positive trend, starting at 27.83% in 2020 and increasing to a peak of 32.28% in 2022. After this peak, there is a slight decline to 31.47% in 2023, followed by a modest increase to 31.87% in 2024. Overall, the company maintains a strong and relatively stable operating profitability throughout the period.

Turnover of Capital (TO)

The turnover of capital remains almost steady around 0.99 to 1.00 between 2020 and 2023. However, in 2024, there is a marked decline to 0.65. This suggests a reduction in asset efficiency or slower revenue generation relative to capital invested during the final year.

1 – Effective Cash Tax Rate (CTR)

This metric exhibits a downward trend over the period, starting from a high rate of 90.66% in 2020 and declining to 68.61% by 2024. The decreasing values indicate an improvement in cash tax efficiency, resulting in a higher proportion of profits being retained after cash taxes in the later years.

Return on Invested Capital (ROIC)

The ROIC shows a slight decrease from 25.05% in 2020 to a low of 23.98% in 2022, followed by a minor recovery to 24.69% in 2023. However, there is a significant drop in 2024 to 14.27%. This sharp decline in the last year contrasts with the relatively stable performance previously and may indicate challenges in generating returns from invested capital.

In summary, while the company sustains a strong operating profit margin and improves cash tax efficiency, the substantial decline in turnover of capital and return on invested capital in 2024 signals potential operational or investment effectiveness concerns that warrant further investigation.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes demonstrates a consistent upward trend over the five-year period. Starting from approximately 781 million US dollars in 2020, the figure increases each year, reaching about 1.51 billion US dollars by the end of 2024. This represents a substantial growth, indicating improved profitability and operational efficiency.

Adjusted Revenue

The adjusted revenue also shows a steady rise, beginning at around 2.81 billion US dollars in 2020 and climbing to nearly 4.73 billion US dollars in 2024. This continuous increase suggests successful growth strategies and expanding market presence over the examined timeframe.

Operating Profit Margin (OPM)

The operating profit margin exhibits a generally positive trend, with values starting at 27.83% in 2020 and increasing to a peak of 32.28% in 2022. Although there is a slight dip in 2023 to 31.47%, it recovers to 31.87% in 2024. This pattern indicates sustained profitability improvements relative to revenue, despite minor fluctuations.

Overall Summary

The financial data reflects a robust growth trajectory in both revenue and profitability. The consistent increase in net operating profit before taxes and adjusted revenue underscores effective business expansion. Furthermore, the strengthening operating profit margin over most years signals efficient cost management and operational effectiveness. Minor variations in the profit margin towards the later years suggest some volatility but do not significantly detract from the overall positive performance trend.

The financial data reveals a consistent upward trend in adjusted revenue over the five-year period. Starting at approximately $2.81 billion in 2020, adjusted revenue increased steadily each year, reaching nearly $4.73 billion by 2024. This growth indicates robust revenue expansion and possibly improved market demand or successful business initiatives contributing to higher sales.

Invested capital shows a similar pattern of growth from 2020 through 2023, rising from around $2.83 billion to $4.06 billion. However, in 2024, invested capital experiences a significant increase to approximately $7.25 billion, indicating a substantial capital investment or asset acquisition in that year. This sharp rise suggests a strategic shift or major investment activity that could impact future operational capacity or expansion plans.

The turnover of capital ratio, which measures efficiency in using invested capital to generate revenue, remains relatively stable around 1.0 from 2020 to 2023, suggesting consistent capital utilization efficiency during this period. However, in 2024, this ratio declines markedly to 0.65, reflecting a decrease in capital turnover. This change implies that despite the increase in invested capital, revenue growth did not keep pace proportionally, resulting in lower efficiency in capital usage for that year.

Adjusted Revenue

Consistently increasing over the five years, indicating steady business growth.

Invested Capital

Growth parallels revenue increases through 2023, followed by a sharp rise in 2024 suggesting major investments.

Turnover of Capital

Stable around 1.0 through 2023, with a significant drop in 2024, indicating reduced efficiency in capital use relative to revenue.

Overall, the data suggests a period of operational growth and relatively efficient capital use until 2023, followed by an accelerated capital investment in 2024 that has not yet translated into proportional revenue gains, warranting further monitoring of the impact of these investments on future performance.

Cash Operating Taxes

The cash operating taxes have experienced a significant upward trend over the five-year period. Starting at $72,956 thousand in 2020, the amount increased steadily each year, reaching $473,174 thousand in 2024. This represents more than a sixfold increase from the initial value, indicating a considerable rise in tax payments in absolute terms.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes also shows a strong positive growth trajectory over the same period. Beginning at $781,389 thousand in 2020, it rose consistently each year, peaking at $1,507,357 thousand in 2024. This steady increase suggests improving profitability and operational performance over the years.

Effective Cash Tax Rate (CTR)

The effective cash tax rate exhibited variability but with a clear increasing trend overall. Starting relatively low at 9.34% in 2020, the rate climbed notably to 31.39% by 2024. This indicates that the proportion of taxes paid relative to pre-tax profits has more than tripled, which may reflect changes in tax legislation, company tax strategy, or shifts in the geographic or business mix affecting tax liabilities.

Summary Insights

The parallel increase in cash operating taxes and net operating profit before taxes suggests that the company's profitability growth has been accompanied by proportionally higher tax obligations. The rising effective cash tax rate accentuates this effect, implying that the company is paying a larger percentage of its profits in taxes over time. Overall, the data points to robust business growth coupled with increased tax burdens.