Cadence Design Systems Inc. (NASDAQ:CDNS)

The financial performance over the quarters reveals several notable trends in return on assets (ROA), financial leverage, and return on equity (ROE).

Return on Assets (ROA)

The ROA values commence from the quarter ending December 31, 2020, at approximately 14.95% and generally show an increasing trend through to the quarter ending June 30, 2024, peaking at 18.36%. Following this peak, a gradual decline is observed through the subsequent quarters, falling to 10.64% by the quarter ending June 30, 2025. This pattern indicates improving asset utilization efficiency up to mid-2024, followed by a downturn in asset profitability toward mid-2025.

Financial Leverage

Financial leverage maintains relatively stable values over the analyzed period, ranging mostly between ratios of 1.57 and 2.01. There is a slight upward trend observed from late 2023 to late 2024, reaching a peak of 2.01 in the quarter ending September 30, 2024, before decreasing slightly towards mid-2025. This suggests marginally increased use of debt relative to equity in the referenced period, with some reduction thereafter.

Return on Equity (ROE)

ROE data, available starting from December 31, 2020, demonstrates an initial increase from 23.69% to a peak of approximately 30.75% in the quarter ending December 31, 2023. Post this peak, a steady decline is noted through 2024 into mid-2025, reaching 20.21% by June 30, 2025. The pattern reflects initially strong equity returns with improved profitability or financial efficiency, followed by a notable decrease in return on shareholders' equity in the latest quarters.

In summary, the period from late 2020 through 2023 saw strong and improving asset efficiency and equity returns supported by relatively stable financial leverage. However, the first half of 2024 and into 2025 indicates weakening profitability on both assets and equity, accompanied by some fluctuations in financial leverage. This overall movement could suggest challenges emerging in operational effectiveness or external conditions impacting returns despite stable capital structure indicators.

Net Profit Margin

The net profit margin shows a generally stable trend from the period starting April 3, 2021, through the end of 2023, fluctuating mostly between approximately 22% and 25%. There is a noticeable peak near the end of 2023, reaching 25.68%. However, from early 2024 onwards, the margin demonstrates a declining pattern, falling steadily to 19.88% by June 30, 2025. This suggests some erosion in profitability relative to revenue in the most recent periods.

Asset Turnover

Asset turnover ratios provide insight into how efficiently the company is using its assets to generate sales. From April 3, 2021, through December 31, 2023, the ratio remained relatively stable around the 0.68 to 0.75 range, with minor fluctuations. Starting in early 2024, a marked decline is observed, reaching a low of 0.47 by June 30, 2024. This reduced turnover somewhat recovers to 0.54 by June 30, 2025, but overall indicates a notable decrease in asset utilization efficiency in the recent periods.

Financial Leverage

Financial leverage ratios have been somewhat variable but generally stable between 1.57 and 1.90 across the periods. There is a slight upward trend starting around October 1, 2022, peaking near 2.01 in September 30, 2024, before declining marginally. This increase in leverage suggests a greater reliance on debt or other liabilities relative to equity during this timeframe, which may have implications for financial risk.

Return on Equity (ROE)

The return on equity exhibited a strong upward trend from April 3, 2021, through late 2023, peaking at 30.75%. ROE remained high during this period, consistently above 25%, evidencing effective use of shareholder equity to generate profit. However, beginning in early 2024, ROE shows a clear downward trajectory, falling to 20.21% by June 30, 2025. This decline parallels the decreases seen in net profit margin and asset turnover, indicating a reduction in overall profitability and operational efficiency impacting shareholder returns.

The analysis of the financial data reveals several trends and fluctuations across key ratios and margins over the covered periods.

Tax Burden

The tax burden ratio shows a gradual decline from approximately 0.93 in early periods to a low of 0.72 by the latest period. This downward trend suggests a decreasing proportion of earnings paid as tax over time, which could be influenced by tax strategy adjustments or changes in tax regulations.

Interest Burden

The interest burden remains relatively stable around 0.97 to 0.98 during earlier periods, followed by a steady decline to 0.93 by the final period. This indicates a modest increase in interest expense impact relative to earnings before interest and taxes, potentially reflecting changes in debt levels or interest rates.

EBIT Margin

The EBIT margin exhibits an overall upward trajectory from around 24.36% to a peak near 32.23%, sustaining levels above 29% thereafter. This rising margin reflects improving operational efficiency or pricing power, contributing positively to profitability before interest and taxes.

Asset Turnover

Asset turnover ratios fluctuate over the periods observed, initially increasing from 0.68 to a higher level of 0.75, but subsequently declining to approximately 0.54 toward the later periods. The initial rise indicates better utilization of assets to generate revenue, while the subsequent decrease may signal lower asset productivity or shifts in asset composition.

Financial Leverage

Financial leverage ratios start near 1.75, exhibit some variation, and increase substantially to above 2.0 at one point before settling around 1.9 by the end. This indicates greater reliance on debt or other liabilities to finance assets during certain periods, which may affect risk and return dynamics.

Return on Equity (ROE)

The ROE displays a general upward trend from about 23.69% to a peak around 30.93%, followed by declines to near 20.21% in the latest period. These movements suggest improving net profitability in the earlier phases, with some erosion of shareholder returns more recently, potentially influenced by the decline in asset turnover and changes in leverage.

Overall, the company's profitability metrics such as EBIT margin and ROE showed improvement in earlier periods but experienced moderation in more recent quarters. Meanwhile, efficiency as indicated by asset turnover faced challenges post-peak. Financial leverage increased temporarily but remained relatively consistent towards the end, and the tax burden steadily decreased, potentially enhancing net income benefits. The interest burden's gradual increase may signal rising financial costs that could temper future profitability gains.

The analysis of the quarterly financial ratios over the observed periods reveals several notable trends regarding profitability, asset utilization, and overall efficiency.

Net Profit Margin

The net profit margin data begins from the quarter ending in December 2020 and extends through to June 2025. Across this timeframe, the margin generally maintains a range between approximately 22% and 25.68%, indicating consistent profitability relative to revenue. A slight upward trend is discernible from December 2020 through December 2023, peaking at around 25.68%. This suggests improving cost management or pricing power during this period. However, starting from March 2024, a gradual decline is evident, dropping to 19.88% by June 2025, which may suggest emerging pressures on cost or revenue streams impacting profitability.

Asset Turnover Ratio

The asset turnover ratio, which measures the efficiency of asset use in generating revenue, shows an initial period with values in the range of approximately 0.68 to 0.75 up to the quarter ending December 2023. This indicates relatively stable efficiency in asset utilization with minor fluctuations but no distinct trend of increase or decrease. From March 2024 onwards, there is a notable decline in the asset turnover ratio, decreasing to values around 0.47 to 0.54 by mid-2025. This decline suggests that asset utilization efficiency has diminished in recent quarters, potentially reflecting slower revenue growth relative to asset levels or increased asset base without proportional revenue increases.

Return on Assets (ROA)

The return on assets, which combines profitability and asset utilization to gauge overall efficiency, mirrors the earlier trends. ROA remains within the range of approximately 14.95% to 18.36% through December 2023, pointing to solid returns generated from the asset base. There is a gradual increase in ROA from late 2020 through the end of 2023, reflecting improving effectiveness in leveraging assets to generate profit. However, starting in March 2024, ROA experiences a marked decline, falling to about 10.64% by June 2025. This decline aligns with the drops seen in both profit margin and asset turnover, indicating a period of reduced asset efficiency and profitability overall.

In summary, the analyzed financial ratios indicate a period of stable and improving profitability and efficiency from late 2020 through the end of 2023, followed by a noticeable deterioration in these metrics starting in early 2024. This shift points to potential challenges faced in maintaining previous growth or efficiency levels, highlighting a need for strategic assessment concerning cost management, asset utilization, or revenue generation going forward.

The financial data displays a range of performance metrics over multiple quarters, reflecting variations in tax, interest, operating efficiency, asset utilization, and profitability.

Tax Burden

The tax burden ratio starts at 0.93 in late 2020 and shows a general declining trend over time, reaching 0.72 by mid-2025. This gradual decrease indicates a rising effective tax rate, potentially reducing net profitability from operating income due to higher tax expenses relative to earnings before tax.

Interest Burden

The interest burden ratio remains relatively stable around 0.97 to 0.98 during 2020 and 2021, before slowly declining to 0.93 by mid-2025. This slight reduction implies a small increase in interest expenses relative to earnings before interest and taxes, which may marginally impact net earnings.

EBIT Margin

EBIT margin shows an improving trend through 2020 and into 2023, increasing from about 24.36% to a peak above 32% in early 2024. Following this peak, the margin slightly declines toward the end of 2024 and into 2025, settling just below 30%. This indicates an overall enhancement in operational profitability with some recent softening.

Asset Turnover

Asset turnover fluctuates moderately, starting near 0.68 in 2020 and peaking at 0.75 in late 2021. However, a notable decline occurs in 2024 where it drops to around 0.47 before modestly recovering to 0.54 by mid-2025. The decline in asset turnover indicates less efficient use of assets to generate revenue during this period.

Return on Assets (ROA)

ROA closely follows the trends in EBIT margin and asset turnover. It rises steadily from about 15% in 2020 to a peak near 18% in early 2024 before decreasing sharply to approximately 10.6% by mid-2025. The drop in ROA is driven mainly by reduced asset turnover combined with a slight contraction in EBIT margin and tax burden dynamics, signifying weakened overall asset profitability.

In summary, the firm experienced improving operational profitability margins and consistent control of interest burden through 2021-2023, supported by generally stable tax conditions early on. However, more recent quarters reveal pressures from rising effective taxes, declining efficiency in asset utilization, and decreasing returns on assets. These factors collectively suggest emerging challenges in maintaining profitability and asset effectiveness going forward.

Tax Burden

The tax burden ratio exhibits a gradual declining trend over the observed periods, starting around 0.93 and decreasing to approximately 0.72 by the last reported quarter. This indicates a slowly reducing proportion of pre-tax income retained after taxes, suggesting increasing tax expenses relative to earnings or changes in tax regulations affecting the company.

Interest Burden

The interest burden ratio remained relatively stable in the early periods, consistently around 0.97 to 0.98, implying minimal interest expenses impacting earnings before tax. However, a slight downward trend is visible in the later periods, declining to 0.93 by the final quarter, which may indicate a modest increase in interest expenses or debt servicing costs over time.

EBIT Margin

The EBIT margin shows overall improvement from 24.36% to a peak of approximately 32.23% during the reported period, reflecting enhanced operational efficiency or profitability from core business activities. After peaking, the margin slightly dips towards the end, settling around 29.84%, signaling a minor erosion in earnings before interest and taxes relative to revenue, possibly due to rising costs or competitive pressures.

Net Profit Margin

The net profit margin displays an upward trend initially, increasing from roughly 22.02% to a high of 25.68%. This suggests growing profitability after all expenses. However, there is a noticeable decline in the later periods, with margins falling to approximately 19.88% by the final quarter. This decline could be associated with rising expenses, lower revenue growth, or other non-operating impacts reducing net income.