Cadence Design Systems Inc. (NASDAQ:CDNS)

The financial data reveals a consistent upward trend in both net cash provided by operating activities and free cash flow to the firm (FCFF) from 2020 through 2023, followed by a slight decline in 2024.

Net Cash Provided by Operating Activities

This figure increased significantly from approximately $905 million in 2020 to about $1.35 billion in 2023, reflecting improving operational efficiency and cash generation capabilities over the period. However, in 2024, the net cash provided by operating activities experienced a decline to around $1.26 billion, indicating a potential slowdown or changes in operational dynamics.

Free Cash Flow to the Firm (FCFF)

The FCFF followed a similar growth trajectory, rising from roughly $829 million in 2020 to a peak of nearly $1.28 billion in 2023. This increase suggests enhanced capacity to generate cash after accounting for capital expenditures. In 2024, FCFF decreased to about $1.15 billion, marking a decline that mirrors the pattern observed in operating cash flow.

Overall, the upward trends until 2023 indicate strong operational performance and efficient capital management. The subsequent decrease in 2024 across both metrics may warrant closer examination to understand the underlying causes, which could include changes in working capital, capital expenditures, or market conditions.

Effective income tax rate (EITR)

The effective income tax rate has shown a notable upward trend over the period analyzed. Starting at 7% in 2020, it increased to 9% in 2021 and then experienced a significant jump to 19% in 2022, maintaining that level in 2023 before rising further to 24% in 2024. This indicates a steady increase in the company's tax burden, which may reflect changes in tax regulations, geographic income mix, or a shift in profitability across different tax jurisdictions.

Cash paid for interest, net of tax

The cash paid for interest, net of tax, exhibits a variable but generally increasing pattern over the years. In 2020, the value was approximately $18.4 million, declining to around $14.5 million in 2021. It then rose moderately to about $17.1 million in 2022, followed by a substantial increase in 2023 to approximately $28.3 million, and further to $32.8 million in 2024. This rising trend in interest payments could suggest increased borrowing or higher interest rates, impacting the company's financing costs.

Enterprise Value (EV)

The enterprise value demonstrated an overall increasing trend from 2020 to 2023, rising from approximately 36.56 billion US dollars to over 81.38 billion US dollars. However, in the following year, 2024, there was a noticeable decline to about 70.50 billion US dollars. This indicates a significant appreciation in the company's market and debt valuation over the first four years, followed by a reversal in the final year observed.

Free Cash Flow to the Firm (FCFF)

Free cash flow to the firm exhibited steady growth from 828.5 million US dollars in 2020 to a peak of approximately 1.27 billion US dollars in 2023. In 2024, there was a slight decrease to about 1.15 billion US dollars, though the level remained substantially higher than the 2020 figure. This suggests relatively stable and improving operational cash generation capabilities over the period, with only a marginal downturn in the last year.

EV/FCFF Ratio

The EV/FCFF ratio showed variability throughout the period. It started at 44.13 in 2020, decreased to 35.05 in 2021, then rose sharply to 44.54 in 2022. The ratio escalated significantly in 2023 to 63.83, indicating an increasing premium of enterprise value relative to cash flow. In 2024, the ratio slightly declined to 61.26 but remained elevated compared to earlier years. This pattern may reflect changing market valuation perspectives or shifts in growth expectations relative to cash flow generation.