Cadence Design Systems Inc. (NASDAQ:CDNS)

Debt to equity ratio

The debt to equity ratio displayed a decreasing trend from March 2020 (0.32) to December 2020 (0.14), indicating a reduction in debt relative to equity during this period. It remained relatively stable through mid-2021 before briefly increasing in the last quarter of 2022 (0.29). Subsequently, the ratio declined steadily until early 2024, reaching 0.18. However, from mid-2024 onwards, there was a notable increase peaking at 0.62 before slightly falling to 0.49 by June 2025, suggesting a recent rise in leverage.

Debt to capital ratio

Similar to the debt to equity ratio, the debt to capital ratio decreased sharply in 2020 from 0.24 to 0.12 by December, suggesting improved capitalization with less reliance on debt. This ratio remained fairly consistent around 0.11 to 0.12 through 2021. During 2022, the ratio rose again to 0.23 but then resumed a downward movement, reaching a low of 0.15 in early 2024. From mid-2024 forward, an upward trend emerged, peaking at 0.38 and slightly falling to 0.33 by mid-2025.

Debt to assets ratio

The debt to assets ratio was on a downward trajectory from 0.18 in March 2020 to 0.08 by December 2020, reflecting lower debt usage relative to total assets. Stability persisted through 2021 with minor fluctuations around 0.08. A sharp increase was recorded in the final quarter of 2022 (0.16), after which the ratio decreased again, reaching 0.11 in early 2024. In mid-2024, the ratio increased noticeably to 0.31, then decreased slightly to 0.26 by mid-2025, indicating increased debt loading relative to assets in the recent period.

Financial leverage ratio

Financial leverage declined from 1.75 in March 2020 to around 1.58 by the end of 2020, indicating a reduction in total assets relative to equity. The ratio fluctuated throughout 2021 and 2022, peaking at 1.87 towards the end of 2022, then generally decreased into early 2024, reaching 1.60. A subsequent increase began mid-2024 with a peak at 2.01, followed by a minor decline to 1.90 by mid-2025. This pattern suggests variable use of leverage with a recent upward shift.

Interest coverage ratio

Interest coverage data is incomplete prior to December 2020. Since then, the ratio showed a consistent increase, rising from 31.5 to a peak of 58.34 by the third quarter of 2022, signifying improved ability to cover interest expenses with operating earnings. After this peak, the ratio steadily declined to 13.5 by June 2025, indicating a reduced capacity to cover interest costs and potentially increased financial risk over time.

Overall trends and insights

The company's financial leverage metrics indicate an initial conservative approach with reduced reliance on debt through 2020 and early 2021. Beginning in late 2022 and more pronounced in mid-2024, there is a clear upward shift in leverage ratios including debt to equity, debt to capital, and debt to assets, reflecting increased borrowing or reduced equity. Concurrently, although interest coverage initially improved considerably, it has deteriorated significantly since late 2022, pointing to decreased earnings buffer against interest obligations. These patterns suggest the company has taken on more debt in recent periods, potentially impacting financial stability and risk profile.

Total Debt

The total debt showed a relatively stable trend around 696 million to 347 million USD during 2020 and early 2021, with a significant drop by the end of 2020 from approximately 696 million to 347 million USD. This lower level persisted until mid-2022. However, a sharp increase occurred at the end of 2022, with total debt rising to nearly 798 million USD. The following periods experienced fluctuations, with a moderate downward trend in early 2023, before a sharp spike in the middle of 2024 reaching over 2.8 billion USD. After that peak, total debt decreased but remained elevated above 2.4 billion USD through mid-2025.

Stockholders’ Equity

Stockholders’ equity demonstrated a consistent upward trajectory throughout the entire period. Starting around 2.16 billion USD in early 2020, it rose steadily with minor fluctuations, reaching over 3.4 billion USD by the end of 2023. The upward momentum continued more rapidly through 2024 and into mid-2025, with stockholders’ equity surpassing 5 billion USD by the second quarter of 2025. There were no evident declines, indicating robust growth in equity over time.

Debt to Equity Ratio

The debt to equity ratio exhibited notable variability tied to the changes in total debt and equity. Initially, it decreased from 0.32 in early 2020 to a low around 0.13 by early 2022, reflecting reduced leverage concurrent with the decline in debt and growth in equity. At the end of 2022 and early 2023, the ratio showed a moderate rise, reflecting increased debt levels, but remained below 0.3. A significant increase occurred in mid-2024, with the ratio reaching 0.62 due to the substantial surge in total debt. Despite some reduction thereafter, the ratio stayed elevated relative to early periods, fluctuating between 0.49 and 0.53 into mid-2025. This indicates a temporary increase in financial leverage, followed by partial deleveraging, though still above previous low levels.

Overall Insights

The data points to a period of initially cautious leverage management with a substantial deleveraging phase through 2020 into early 2022, supported by consistent growth in shareholders’ equity. The latter part of the timeframe is marked by significant borrowing increases, particularly in mid-2024, leading to heightened leverage ratios. Despite elevated debt levels, equity growth remains strong, suggesting sustained capital base expansion. This dynamic may reflect strategic financing decisions or investment activities requiring increased debt, balanced by solid equity accumulation.

The quarterly financial data reveals several key trends related to debt and capital structure over the examined periods.

Total Debt

The total debt remained relatively stable around US$696 million during early 2020 but experienced a sharp reduction to approximately US$347 million by the end of 2020 and remained nearly constant through mid-2022. From late 2022 onwards, total debt showed notable volatility. It spiked significantly to nearly US$798 million in October 2022, then generally decreased through mid-2023 to around US$648 million. Starting from mid-2023, total debt surged dramatically, reaching a peak of approximately US$2.83 billion by mid-2024, before slightly declining to about US$2.48 billion by mid-2025.

Total Capital

Total capital exhibited a generally upward trajectory over the full time span, beginning at about US$2.85 billion in early 2020. It fluctuated modestly throughout 2020 and 2021, reaching around US$3.11 billion by early 2022. A significant increase occurred towards the end of 2022, with total capital climbing to approximately US$3.51 billion. Subsequently, capital continued to expand steadily, reaching almost US$4.22 billion by mid-2024 and peaking near US$7.48 billion by mid-2025, thereby more than doubling over the five-year period.

Debt to Capital Ratio

The ratio of debt to capital started at approximately 0.24 in early 2020, indicating that debt comprised about 24% of the company’s total capital. This ratio declined sharply to near 0.11 by late 2020 and remained stable around 0.11–0.12 through mid-2022. However, a rise occurred starting in late 2022, with the ratio increasing to approximately 0.23, then declining gradually to around 0.15 by mid-2024. Thereafter, the ratio climbed sharply, peaking at 0.38 in mid-2024, before declining moderately but remaining elevated around 0.33 by mid-2025. This reflects increasing leverage in the recent periods.

Overall, the data suggests a phase of debt reduction and conservative leverage from early 2020 through mid-2022, followed by increased borrowing and capital growth from late 2022 onwards. The spike in total debt and the rising debt-to-capital ratio during 2023 and 2024 indicate a strategic shift toward greater leverage. Simultaneously, the substantial increase in total capital points to successful capital accumulation, possibly through equity or retained earnings, supporting the company’s expansion or investment activities. The simultaneous growth of both debt and capital suggests an aggressive balance sheet positioning in recent quarters.

Total Debt

Over the observed periods, total debt initially remained fairly stable, fluctuating slightly around the 696 million US dollars mark from March 2020 through September 2020. There was a significant decrease starting in December 2020, where debt almost halved to approximately 347 million US dollars and maintained this level throughout much of 2021 and early 2022. However, a marked increase occurred starting in October 2022, peaking at over 2.8 billion US dollars by June 2024. This elevated level of debt persisted, albeit with slight decreases, through to June 2025.

Total Assets

Total assets displayed a generally upward trajectory across the periods. Beginning at approximately 3.77 billion US dollars in March 2020, assets experienced moderate growth with some fluctuations, reaching a notable rise particularly from October 2022 onward. By June 2024, total assets peaked near 9.17 billion US dollars before experiencing minor fluctuations but remained close to this elevated level through June 2025.

Debt to Assets Ratio

The debt to assets ratio mirrored the changes in debt and asset levels but demonstrated an overall upward trend after an initial period of decline. From March 2020 to December 2020, the ratio decreased substantially from 0.18 to 0.09, reflecting debt reduction relative to assets growth. This ratio held relatively steady at about 0.08 during 2021 and early 2022, coinciding with the stable lower debt levels. However, following the debt surge starting late 2022, the ratio increased sharply, reaching a peak of 0.31 in June 2024. Towards the end of the dataset, the ratio declined slightly but remained elevated around 0.26 to 0.28, indicating a higher leverage position relative to asset base compared to the earlier period.

Overall Trends and Insights

There was a significant deleveraging phase during late 2020, characterized by a reduction in total debt and a decrease in the debt to assets ratio, suggesting a focus on reducing financial risk. Subsequently, from late 2022 onward, both assets and debt expanded considerably, with the debt to assets ratio rising sharply indicating a shift toward higher leverage. This may reflect strategic initiatives involving increased financing or investments funded through debt. The data indicates the company's capital structure and financial risk profile have undergone substantial changes, moving from conservative debt levels to a more leveraged position over the course of the time periods analyzed.

Total assets

Total assets exhibited a generally upward trend over the observed periods. Beginning at approximately 3.77 billion US dollars in the first quarter of 2020, assets increased with some fluctuations reaching over 5.7 billion by the first quarter of 2024. Notably, there was a significant jump in the third quarter of 2024, where total assets surged to over 7.2 billion and further to approximately 9.17 billion by the fourth quarter of 2024. Subsequent periods showed a slight decrease but still remaining above 9 billion dollars. This suggests an expansion in asset base in recent quarters.

Stockholders’ equity

Stockholders’ equity also demonstrated steady growth over the period. Starting from about 2.16 billion US dollars in the first quarter of 2020, equity gradually increased to roughly 3.57 billion by the first quarter of 2024. Similarly to total assets, a pronounced increase was observed in the third and fourth quarters of 2024, where equity rose above 4.2 and 4.5 billion respectively. Following this, equity continued to climb modestly into 2025, reaching approximately 5 billion by the second quarter. This pattern reveals ongoing value accumulation for shareholders, aligned with the asset growth.

Financial leverage

The financial leverage ratio, calculated as total assets divided by stockholders’ equity, fluctuated moderately but remained within a range of approximately 1.57 to 2.01 throughout the periods. Initially, leverage was around 1.75 in early 2020, dipping to about 1.57–1.6 mid-2020 and mid-2021. A notable increase occurred in late 2022, reaching a peak of 1.87 and peaking at 2.01 in the third quarter of 2024, corresponding with the sharp increase in total assets. Subsequently, leverage slightly decreased but stayed elevated around 1.9 through mid-2025. This pattern indicates increasing reliance on external financing relative to equity, particularly during recent substantial asset growth periods.

The analysis of the financial data reveals several notable trends in earnings before interest and tax (EBIT), interest expense, and interest coverage ratios over the periods from March 2020 to June 2025.

Earnings Before Interest and Tax (EBIT)

EBIT showed a consistent upward trend beginning in March 2020, increasing from 134,817 thousand US dollars to a peak of 371,051 thousand US dollars by December 2023. After this peak, the EBIT experienced some fluctuations but generally remained strong, with values around 318,735 to 466,559 thousand US dollars through June 2025. This reflects substantial growth in operating profitability over the five-year period, although some quarters demonstrated variability in the magnitude of EBIT.

Interest Expense

Interest expense remained relatively stable at around 4,000 to 5,000 thousand US dollars from March 2020 through December 2021, then increased notably from 9,260 thousand US dollars in March 2023 to a significantly higher range of approximately 24,495 to 29,918 thousand US dollars in the period from September 2024 to June 2025. This indicates rising costs of borrowing or increased leverage in the latter periods, which could impact net profitability if not matched by growth in EBIT.

Interest Coverage Ratio

The interest coverage ratio, which measures the ability to meet interest obligations from operating earnings, was relatively high throughout the observed periods. Starting around 31.5 in late 2020, this ratio improved, reaching its highest values between 52.92 and 58.34 in 2021 and early 2022, reflecting strong EBIT relative to interest expenses. However, from mid-2023 onward, the ratio shows a steady decline, falling to approximately 13.5 by June 2025. This downward trend is primarily driven by rising interest expenses outpacing EBIT growth, signaling a potential increase in financial risk or reduced buffer to cover interest payments in recent years.

In summary, while EBIT demonstrated robust growth with occasional fluctuations, the substantial increase in interest expenses from 2023 onward led to a marked decline in interest coverage ratios. This suggests that although operating performance remains strong, the company faces a growing burden from interest costs, which warrants monitoring for potential impacts on financial stability and creditworthiness going forward.