Fortinet Inc. (NASDAQ:FTNT)

The financial ratios of the company exhibit significant variation over the analyzed quarterly periods, revealing insights into its leverage and capacity to meet interest obligations.

Debt to Equity Ratio

This ratio was relatively stable around 1.0 in the quarters from June 2021 to December 2021 but spiked dramatically to 4.54 by March 2022 and further increased to an extremely high level of 86.92 by March 2023. This suggests a massive increase in debt relative to shareholders' equity in the most recent periods, indicating heightened financial risk and leverage.

Debt to Capital Ratio

The debt to capital ratio remained below 1.0 throughout the period with some fluctuations. It was near 0.5 during mid-2021, increased sharply to 0.82 in March 2022, and peaked at 2.79 in September 2022 before declining to 0.99 by March 2023. The spike above 1.0 is unusual and may indicate potential issues in the calculation or unusual balance sheet structure at that time.

Debt to Assets Ratio

This ratio was relatively stable and low, ranging from 0.15 to 0.19 across all quarters for which data is present. This relatively steady ratio suggests that total assets increased commensurately with debt, and the company maintained a consistent level of asset backing for its liabilities.

Financial Leverage Ratio

Starting from around 3.0 in early 2019, financial leverage showed a rising trend, particularly between December 2021 and March 2022, where it surged from 7.57 to an exceptionally high figure of 599.32 by March 2023. Such an extreme increase suggests a substantial shift in the company's capital structure leading to high reliance on debt financing relative to equity.

Interest Coverage Ratio

The interest coverage ratio showed a decreasing trend from an extraordinary high of 418.85 in March 2021 to a low of 35.9 in March 2022, followed by a gradual recovery to 56.47 by March 2023. Despite the decrease, values remain well above 1, indicating the company has maintained the ability to cover interest expenses from operating earnings, although with less margin than in previous periods.

Overall, the data indicates that while the company maintained relatively conservative leverage and very strong interest coverage until early 2021, it experienced significant increases in debt levels and leverage ratios thereafter. The sharp rise in debt to equity and financial leverage ratios towards 2023 highlights growing financial risk. However, the company still seems capable of generating sufficient earnings to cover interest payments, albeit with a narrower comfort margin.

The financial data reveals notable trends in the company's capital structure over the analyzed periods. Total debt figures are provided starting from March 2021, showing a relatively stable debt level, fluctuating slightly around 987,000 to 991,000 thousand US dollars. This indicates that the company maintained a consistent debt load during this timeframe.

Stockholders' equity, however, displays significant volatility. From March 2019 through December 2021, equity steadily increased from approximately 1,058,100 to 1,118,100 thousand US dollars, reflecting growing net assets. Starting in March 2022, equity showed a sharp decline, turning negative by June 2022 and continuing into the negative territory through December 2022. By March 2023, equity had returned to a slightly positive figure of 11,400 thousand US dollars. This pattern suggests considerable financial distress or impairment events impacting net assets during the 2022 period.

The debt to equity ratio supports these observations, demonstrating a stable ratio near 1 from March 2021 through December 2021, indicative of balanced leverage. However, the ratio spikes dramatically to 4.54 by March 2022 before reaching an extremely high figure of 86.92 in March 2023. This surge results from the steep decline in equity rather than a corresponding increase in debt, highlighting a pronounced deterioration in the company's equity base relative to its fixed debt obligations.

In summary, while the total debt remained steady, the company’s equity eroded substantially in 2022, leading to a highly leveraged position as measured by the debt to equity ratio. This shift suggests increased financial risk and potential challenges in maintaining sufficient shareholder equity.

The analysis of the quarterly financial data indicates significant shifts in the company's capital structure and leverage ratios over the observed periods.

Total Debt

The total debt remained unreported for the initial quarters and then consistently recorded values starting from March 31, 2021. From this point onward, the total debt shows a relatively stable trend around approximately 987,000 to 991,000 thousand US dollars. This stability in debt levels suggests a period of controlled borrowing or stable debt management after its initial reporting.

Total Capital

Total capital exhibited fluctuating patterns over the quarters. Early figures show steady growth from March 31, 2019 through December 31, 2019, peaking at approximately 1,321,900 thousand US dollars. However, beginning in March 31, 2020, there is a significant drop, reaching a low of 355,200 thousand US dollars by September 30, 2022. Subsequently, capital figures show some signs of recovery towards the end of the period, climbing back to just over 1,000,000 thousand US dollars by March 31, 2023. This volatility could indicate changes in equity financing, asset base, or fluctuations in retained earnings.

Debt to Capital Ratio

This ratio started being reported only from June 30, 2021, with an initial value of 0.50, indicative of a balanced leverage posture where debt comprised about half of the total capital. In subsequent quarters, this ratio decreased slightly to 0.47, then increased to a peak of 2.79 by September 30, 2022, indicating that debt substantially exceeded total capital during this period. Following this peak, the ratio decreased significantly to 0.99 by March 31, 2023, approaching a more balanced capital structure again. These changes imply notable shifts in the firm's financing strategy, with a period of increased leverage followed by deleveraging efforts.

Overall, the financial data reflects a period of significant capital fluctuations and varying leverage levels. The company experienced a phase of capital reduction and rising indebtedness, reaching a high leverage position, followed by corrective movements towards stabilizing its capital structure. Monitoring how these trends impact financial risk and operational capacity will be essential in future evaluations.

Total Debt

The total debt remained unreported until the third quarter of 2021, after which it consistently hovered around US$987 million to US$991 million. Over this period, total debt shows a very stable pattern with negligible increases, suggesting no significant additional borrowing or repayment activities occurred from late 2021 through the first quarter of 2023.

Total Assets

Total assets exhibited a generally increasing trend over the entire timeline. Starting from approximately US$3.2 billion in the first quarter of 2019, assets grew steadily to exceed US$5.9 billion by the last quarter of 2021. After this peak, there was a mild decline through most of 2022, reaching about US$5.3 billion in the third quarter of that year. However, by the first quarter of 2023, total assets surged significantly to approximately US$6.8 billion, indicating a notable expansion in asset base at the start of 2023.

Debt to Assets Ratio

The debt to assets ratio is only available from the first quarter of 2021 onward. It began at 0.19 and mostly trended downward, reaching 0.15 by the first quarter of 2023. This decreasing ratio suggests that the company has been increasing its asset base at a faster pace relative to its debt, thereby improving its leverage position. The brief uptick in mid-2022 to 0.19 indicates a temporary relative increase in debt or dip in assets, but the overall trajectory remains towards lower leverage.

Total Assets

The total assets demonstrated a general upward trend over the periods analyzed. Starting from approximately 3.21 billion US dollars at the end of the first quarter in 2019, there was a steady increase until the end of 2019. After a slight dip in early 2020, assets resumed growth, reaching over 6.83 billion US dollars by the first quarter of 2023. This growth indicates expansion in the company's asset base and suggests an increased capacity to support operations or investments.

Total Stockholders’ Equity (Deficit)

The equity value experienced significant volatility during the periods observed. Initial growth was recorded from early 2019 through the end of 2019, rising from about 1.06 billion to 1.32 billion US dollars. However, a sharp decline occurred starting in 2020, dropping the equity to 217.7 million US dollars by the first quarter of 2022, and further into negative territory in late 2022, with the lowest point near negative 635 million US dollars. A slight recovery was noted by the first quarter of 2023, almost reaching positive equity again. This fluctuation, particularly the erosion of equity and periods of deficit, may signal financial stress or increased liabilities during those periods.

Financial Leverage Ratio

Financial leverage ratios reflected marked variability across the time frame. The ratio was relatively stable around the value of 3 during 2019 but doubled to nearly 6 in early 2020, implying increased reliance on debt financing. It somewhat moderated towards the end of 2020 and maintained an elevated level around 5.3 through 2021. Starting in 2022, the leverage ratio spiked dramatically, peaking at over 25 and eventually reaching an extraordinarily high value near 599 by the first quarter of 2023. Such an escalation signifies a significant increase in debt relative to equity, which, combined with the negative equity values, suggests heightened financial risk and potential solvency concerns during the later periods.

Earnings before interest and tax (EBIT)

The EBIT figures demonstrate an overall positive trend from March 2019 through March 2023, with periodic fluctuations. Initially, EBIT increased steadily from $60,300 thousand in March 2019 to $127,700 thousand in December 2019. A slight decline occurred in the first quarter of 2020, followed by recovery and growth throughout 2020, culminating in $171,700 thousand by December 2020.

In 2021, EBIT exhibited moderate variability, starting at $120,700 thousand in the first quarter and rising to $207,000 thousand in the fourth quarter. The upward momentum intensified in 2022, with EBIT figures rising from $134,700 thousand in the first quarter to a peak of $327,500 thousand in the final quarter. The latest data point in March 2023 shows a slight decrease to $274,000 thousand, yet remaining substantially higher than earlier periods.

Interest Expense

Interest expense was not recorded or reported until the second quarter of 2021, where it appeared at $1,300 thousand. Since then, it has remained relatively stable, fluctuating marginally around the $4,500 to $5,000 thousand range per quarter through March 2023.

Interest Coverage Ratio

Interest coverage ratio figures are only available starting from the second quarter of 2021. The ratio began at an extremely high level of 418.85, reflecting strong earnings relative to interest costs. Subsequently, the ratio decreased significantly over the next quarters, settling in the range between approximately 35.9 and 56.5 from the first quarter of 2022 to the first quarter of 2023. Despite the decline, these levels still indicate a comfortable ability to cover interest expenses through operating earnings.

Summary Insights

The company demonstrated strong EBIT growth overall, especially notable from 2021 through 2022. Interest expenses emerged as a notable but controlled cost starting mid-2021. Although the interest coverage ratio declined markedly from its initial extremely high value, it has maintained a healthy margin, implying satisfactory operating income to service debt. The slight decrease in EBIT in early 2023 could warrant monitoring but does not yet indicate a reversal of the positive growth trend.