Cadence Design Systems Inc. (NASDAQ:CDNS)

The company's quarterly financial performance exhibits notable trends in key profitability and leverage metrics over the periods analyzed.

Return on Assets (ROA)

The ROA steadily maintained values predominantly in the mid-to-high teens percentage range during the initial periods, specifically between 15.8% and 18.4% up through late 2023. This indicates consistent efficiency in utilizing assets to generate profits. However, starting from early 2024, the ROA showed a significant downward trend, declining from approximately 18.3% to a low near 10.6% in mid-2025, with only a slight recovery toward the end of the series. This decline may suggest reduced asset efficiency or profitability challenges in the most recent quarters.

Financial Leverage

The financial leverage ratio remained relatively stable, fluctuating modestly between 1.57 and 1.9 across the entire timeline. Initial quarters showed a range from roughly 1.57 to 1.87, followed by some increases reaching a peak of about 2.01 by late 2024. Subsequently, leverage slightly decreased but remained near this higher level towards mid-2025. This suggests a moderate increase in the use of debt or financial obligations relative to equity over time, potentially indicating an increased reliance on borrowed funds to finance assets.

Return on Equity (ROE)

The ROE consistently displayed strong profitability from the shareholders' perspective during the early and mid-periods, mostly ranging between 25% and 31%. Notably, ROE peaked near 31% in late 2022 and early 2023, aligning with elevated asset returns and stable leverage. Nevertheless, a pronounced decline is observed starting in early 2024, where ROE dropped to levels around 20% by mid-2025. This decline follows the diminishing ROA trend while occurring despite relatively stable financial leverage, implying decreasing net income generation relative to shareholders' equity.

In summary, the company demonstrated robust profitability and efficient asset utilization through 2023, accompanied by modest leverage increases. The most recent fiscal quarters, however, reflect a deterioration in asset profitability and equity returns, despite stable leverage ratios, signaling potential operational or market challenges impacting overall financial performance. Further investigation into underlying revenue, expense, or market conditions would be advisable to ascertain causative factors underlying these shifts.

Net Profit Margin

The net profit margin remained relatively stable around 23% to 24% through 2021 and most of 2022, showing minor fluctuations within a narrow band. Starting in late 2023, the margin exhibited an upward trend, peaking above 25% in early 2024. However, after this peak, a gradual decline is noticeable through 2024 and into mid-2025, dropping to approximately 20%, signaling potential pressure on profitability or increased costs affecting net earnings.

Asset Turnover

Asset turnover ratios hovered close to 0.7 in the initial periods of 2021 through mid-2023, indicating consistent efficiency in utilizing assets to generate sales. A marked decline begins in late 2023, with the ratio falling below 0.6 and reaching around 0.54 by mid-2025. This downward trend suggests a reduction in operational efficiency or slower sales growth relative to the asset base during the recent periods.

Financial Leverage

Financial leverage showed a gradual increase from around 1.57 in early 2021 to nearly 1.87 by the end of 2022, indicating somewhat increased use of debt or other liabilities relative to equity. This was followed by some fluctuations in 2023 and 2024, with leverage peaking again near 2.01 before settling around 1.85 by mid-2025. The overall pattern suggests a modest increase in leverage over time, reflecting changes in the company’s capital structure or financing strategies.

Return on Equity (ROE)

ROE demonstrated strong growth from approximately 25.7% in early 2021 to a high point near 31% by late 2022 and most of 2023, indicating enhanced profitability for shareholders during this period. After this peak, the metric declined steadily through 2024 into 2025, down to about 20%. This decline aligns with the decreases observed in net profit margin and asset turnover, suggesting that reduced profitability and operational efficiency have impacted overall shareholder returns.

Tax Burden

The tax burden ratio exhibited a general declining trend over the periods analyzed, starting near 0.93 and decreasing to roughly 0.72 by the end of the timeline. The steepest decline occurred between early 2021 and mid-2022, with some minor fluctuations observed in late 2022 and early 2023. This indicates a gradual increase in the effective tax rate impacting the company’s net income relative to pre-tax income.

Interest Burden

The interest burden ratio remained relatively stable throughout, fluctuating narrowly around 0.97 to 0.93. This consistency suggests that interest expenses have had a minimal and steady impact on earnings before taxes, reflecting stable debt servicing costs or effective interest expense management.

EBIT Margin

The EBIT margin showed overall upward momentum from about 25.9% in early 2021 to peaks exceeding 32% in late 2023. Margins increased steadily through 2021 and 2022, peaked during late 2023, and then experienced a slight contraction toward the mid and late periods of 2024 and 2025, remaining above 29%. This pattern denotes improving operational efficiency and profitability up to late 2023, followed by some moderation into 2024 and beyond.

Asset Turnover

This ratio displayed moderate variability, generally ranging between 0.7 and 0.75 in the earlier periods but dropping sharply starting mid-2024, declining to around 0.47 and then stabilizing near 0.54 in subsequent quarters. The initial stability suggests consistent asset utilization, while the later decline indicates a reduced efficiency in generating revenue from assets, potentially due to increased asset base or slowing revenue growth relative to assets.

Financial Leverage

The financial leverage ratio increased from about 1.57 to a peak above 2.0 around mid-2024, then slightly tapered to values near 1.85 by late 2025. This increase in leverage implies a greater use of debt or other liabilities relative to equity, which could amplify both potential returns and risks. The peak leverage coincides with the period that witnessed declining asset turnover and some erosion in ROE, suggesting a possible strain from higher leverage.

Return on Equity (ROE)

ROE displayed a rise from approximately 25.7% early in the period to a high around 30.9% in late 2022, reflecting strong profitability and effective use of equity capital. However, after this peak, ROE showed a downward trend through 2024 and into 2025, declining to near 20%. The decline correlates with reduced asset turnover and increased financial leverage, indicating that the benefits of leverage are diminishing and operational efficiency may be decreasing, impacting overall equity returns.

The analysis of the quarterly financial metrics reveals distinctive trends over the examined periods, indicating shifts in profitability, efficiency, and asset utilization.

Net Profit Margin

The net profit margin exhibited relative stability with values predominantly fluctuating between approximately 22% and 26% throughout the earlier periods. Notably, there was a gradual increase starting from the quarters of March 2023 to June 2024, peaking near 25.68%. However, a declining trend is evident thereafter, with margins decreasing significantly to below 23% by the end of 2024 and further dipping towards approximately 20% by mid-2025. This suggests a reduction in profitability relative to revenues in the most recent quarters.

Asset Turnover

The asset turnover ratio showed moderate variability, initially maintaining around 0.7 with slight increases reaching up to 0.75 in mid-2022. Subsequently, a downward movement is observed from mid-2024 onwards, with the ratio dropping to a low of 0.47 before modestly recovering to approximately 0.54 by mid-2025. The reduced asset turnover in the latter periods indicates a decrease in efficiency with which assets are being used to generate revenue.

Return on Assets (ROA)

ROA demonstrated a pattern closely aligned with the trends in net profit margin and asset turnover, reflecting overall profitability relative to asset base. Early periods show ROA levels around 16% to 18%, with a peak near 18.36% in late 2023. From early 2024 forward, there is a pronounced decline, dropping as low as around 10.64% by early 2025. The declining ROA reinforces the indication of diminished returns from company assets over recent quarters.

In summary, while earlier quarters depict stable and relatively strong profitability and efficiency, the last several quarters reveal weakening financial performance, both in terms of profit margins and asset utilization. This downtrend warrants further investigation into underlying operational or market factors influencing profitability and asset efficiency.

The financial analysis reveals several noteworthy trends in key performance ratios over the observed quarterly periods.

Tax Burden

The tax burden ratio declined gradually from 0.93 to 0.72 over the examined quarters, indicating a decreasing proportion of earnings lost to taxes. This downward trend suggests an improving after-tax profitability or potential tax optimization strategies that reduced tax expenses relative to pre-tax earnings.

Interest Burden

The interest burden ratio remained relatively stable but showed a slight decrease from approximately 0.97 to 0.93 across the time frame. This slight decline implies a marginal increase in interest expenses relative to earnings before interest and taxes, which could reflect higher debt levels or rising interest rates impacting interest charges.

EBIT Margin

The EBIT margin demonstrated an overall upward tendency, increasing from about 25.9% to peaks above 32% during the observed quarters before normalizing closer to 30%. This improvement indicates enhanced operational efficiency and profitability at the earnings before interest and taxes level, with some volatility that may be linked to changing cost structures or revenue mix.

Asset Turnover

The asset turnover ratio showed modest fluctuations, starting near 0.70 and moving within a narrow range before declining to about 0.54 in later quarters. This decline suggests a reduction in revenue generated per unit of assets, which may signal less intensive asset utilization or potential asset base expansion not yet producing proportional revenue growth.

Return on Assets (ROA)

ROA exhibited variability, initially increasing from 16.35% to a peak around 18.36%, followed by a noticeable decline down to approximately 10.64% before a slight recovery. This pattern reflects fluctuating efficiency in generating net income from total assets, consistent with the later declining asset turnover and variations in EBIT margin. The diminishing ROA towards the end of the period might raise concerns about asset utilization or profitability pressures.

In summary, while operational profitability as measured by EBIT margin improved notably, pressures on asset turnover and a higher interest burden slightly offset these gains. The decreasing tax burden supported net profitability, but the falling return on assets in recent quarters suggests attention to asset management and cost control remains vital for sustaining overall financial performance.

Tax Burden

The tax burden ratio shows a decreasing trend over the periods reviewed. Initially, the ratio was high at approximately 0.93 and gradually declined to around 0.72 by the last recorded quarter. This indicates a reduction in taxes paid as a proportion of pre-tax income, which could reflect more efficient tax management or changes in tax regulations impacting the company.

Interest Burden

The interest burden ratio remained relatively stable throughout the periods, with minor fluctuations around 0.97 to 0.93. The slight decrease toward the later quarters suggests a marginal increase in interest expenses relative to earnings before interest and taxes, but overall the burden remains low, indicating effective control over interest costs.

EBIT Margin

The EBIT margin displayed an upward trend from the beginning, rising from approximately 25.9% to exceed 32% in some quarters of the middle period. In the more recent quarters, there was some variability but the margin mostly stabilized around 30% to 31.7%, before showing a slight decline near the last few periods. This pattern suggests improved operational efficiency and profitability initially, with some pressure on margins more recently.

Net Profit Margin

The net profit margin showed moderate stability initially, fluctuating slightly around 23% - 25% through the mid-period quarters. However, in the most recent periods, a gradual decline can be observed, reaching the range of about 19.9% to 20.4%. This decline may indicate increased costs, reduced operational effectiveness, or other adverse impacts on the bottom line despite relatively stable EBIT margins.