KLA Corp. (NASDAQ:KLAC)

The analysis of the quarterly financial ratios reveals distinct trends and fluctuations over the presented periods. There is a notable evolution in the company's leverage, debt composition, and interest coverage, reflecting changes in financial structure and operational capacity.

Debt to Equity Ratio

The debt to equity ratio initially exhibits a stable range between approximately 1.2 and 1.49 from late 2018 through early 2022, implying moderate use of debt financing relative to equity. However, a significant spike occurs around mid-2022, reaching a peak of 4.75, indicating a substantial increase in debt relative to equity. Following this peak, the ratio declines steadily but remains elevated compared to earlier periods, stabilizing near 1.47 by early 2025. This suggests a period of aggressive leverage increased debt financing before moving towards deleveraging.

Debt to Capital Ratio

This ratio demonstrates a consistent declining trend from 0.59 in September 2018 to a low near 0.46 by late 2021, signaling a gradual reduction in the proportion of debt in the company’s capital structure. A sharp rise to 0.83 is observed in mid-2022, paralleling the spike in debt to equity, indicating heightened reliance on debt during this period. Subsequently, the ratio declines again, settling around 0.59 by early 2025. The fluctuations mirror shifts in capital structure, with increased debt financing followed by consolidation.

Debt to Assets Ratio

Throughout most of the timeline, this ratio remains relatively stable, ranging roughly from 0.29 to 0.40, indicating steady leverage relative to total assets. Like the previous ratios, a marked increase to 0.53 is recorded in mid-2022, corroborating the period of intensified borrowing. Following this peak, a gradual decrease occurs, with the ratio returning near earlier levels by 2025. This stability outside of the mid-2022 spike suggests consistent asset financing strategies aside from that anomalous period.

Financial Leverage

The financial leverage ratio maintains a gradual downward trend from 3.6 in late 2018 to about 2.89 by late 2021, reflecting decreasing reliance on debt relative to equity. An abrupt surge to 8.99 occurs in mid-2022, concurrent with the observed debt ratio increases. Afterward, financial leverage decreases progressively but remains higher than initial values through early 2025. This pattern reinforces the interpretation of a temporary period of heightened leverage followed by retrenchment.

Interest Coverage Ratio

Data for interest coverage begins at 11.4 in the first quarter of 2019 and generally improves over time, peaking at 22.76 near mid-2022, indicating enhanced ability to meet interest obligations from operating earnings. Following this peak, the ratio trends downward, reaching about 14.66 by early 2025. Despite the decline, the interest coverage remains robust, suggesting sustained profitability and operational cash flow sufficient to cover interest expenses even during periods of increased debt.

In summary, the period leading up to mid-2022 is characterized by stable leverage metrics with gradual improvements in financial health. Mid-2022 marks a distinct shift with significant increases in leverage ratios, including debt to equity, debt to capital, debt to assets, and financial leverage, indicating elevated borrowing or capital restructuring. The corresponding peak in interest coverage ratio suggests that despite the increased debt load, the company maintained or improved its earnings capacity to service debt. Post this period, a reversion towards pre-spike leverage levels is evident, accompanied by moderately reduced interest coverage ratios, reflecting a return to more conservative financial footing and possibly deleveraging actions.

Total Debt

The total debt level exhibited an overall increasing trend with some notable fluctuations over the period analyzed. Initially, total debt was approximately $2.24 billion in late 2018, rising modestly to around $3.44 billion by early 2021. However, a significant surge occurred in mid-2022, with debt quickly rising to over $6.66 billion. Following this peak, a gradual decline is observed, with debt reducing to approximately $5.88 billion by early 2025. This pattern indicates a period of considerable leverage increase, followed by a moderate deleveraging phase.

Total KLA Stockholders’ Equity

The stockholders’ equity showed steady growth from approximately $1.57 billion at the end of 2018 to over $4 billion during 2021. A sharp decline is evident in mid-2022, coinciding with the large increase in debt, dropping equity to about $1.4 billion. Subsequently, equity rebounded and steadily increased again, reaching over $4 billion by early 2025. This suggests a period of financial stress or restructuring around mid-2022, followed by recovery and strengthening of the equity base.

Debt to Equity Ratio

The debt to equity ratio fluctuated correspondingly with changes in debt and equity levels. The ratio decreased from around 1.43 in late 2018 to below 1 at the end of 2021, reflecting improved capital structure and relatively lower leverage. Starting mid-2022, the ratio sharply increased to 4.75, indicating a significant rise in debt relative to equity. Thereafter, it gradually declined, settling at approximately 1.47 by early 2025, a level somewhat higher than the pre-crisis period but substantially improved from the peak leverage. This indicates a cycle of deleveraging following the period of elevated financial risk.

Total Debt

The total debt figures display a generally increasing pattern over the presented periods, starting at approximately $2.24 billion in September 2018 and rising markedly to a peak of about $6.66 billion in June 2022. Following this peak, there is a gradual decline to approximately $5.88 billion by September 2024. While fluctuations are evident in the intermediary quarters, the overall trend reflects substantial growth in total debt, particularly notable around mid-2022.

Total Capital

Total capital shows an upward trajectory through most of the timeframe, beginning at around $3.81 billion in September 2018 and increasing steadily to reach close to $10.19 billion in March 2025. Notably, there is a consistent increase in capital between 2018 and 2024, with only minor variations. The capital value experiences a slight dip around June 2024 but subsequently recovers.

Debt to Capital Ratio

The debt to capital ratio illustrates variability reflective of the changes in both debt and capital levels. Initially, the ratio hovers near 0.59 in late 2018, declining gradually to a low of approximately 0.46 by December 2021, indicating a reduction in leverage during that period. Following December 2021, a pronounced surge is observed reaching 0.83 by June 2022, corresponding with the peak in total debt observed earlier. Post-peak, the ratio declines steadily, stabilizing around 0.59 by September 2024. This pattern suggests shifts in the capital structure with periods of increased leverage followed by deleveraging efforts.

Summary Insights

The data reveals an overall increase in both debt and capital, signifying expansion or investment activities. The sharp rise in total debt and debt to capital ratio around mid-2022 indicates a period of heightened borrowing relative to total capitalization. Subsequent decreases in both metrics point to a strategy aimed at reducing financial leverage. The steady growth in total capital alongside fluctuating debt levels suggests efforts to strengthen the equity or asset base while managing debt exposure prudently over time.

The analysis of the quarterly financial data reveals several key trends regarding the company's debt, assets, and leverage ratio over the observed periods.

Total Debt

Total debt remained relatively stable around 2.2 to 3.4 million US dollars from late 2018 through the end of 2019, with a mild increase in early 2020. A significant surge in total debt is observed starting mid-2022, peaking near 6.7 million US dollars in December 2022. Following this peak, a gradual reduction can be seen through mid-2025, stabilizing closer to 5.9 million US dollars.

Total Assets

Total assets generally exhibited consistent growth, increasing from approximately 5.6 million US dollars in late 2018 to over 15.6 million US dollars by early 2025. Notably, the asset base grew steadily with minor fluctuations, maintaining an upward trajectory throughout the period analyzed. There was no marked contraction in assets despite the volatility in debt levels.

Debt to Assets Ratio

The debt to assets ratio was stable at around 0.37 to 0.40 during the 2018 to 2021 period, indicating moderate leverage. However, starting from mid-2022, the ratio sharply increased to about 0.53, reflecting a significant rise in indebtedness relative to assets. After peaking, the ratio gradually decreased but remained elevated above 0.39 through mid-2025 compared to prior years, suggesting sustained higher leverage since 2022.

In summary, the company maintained a moderate level of debt relative to assets during the initial years. The pronounced increase in debt and consequent rise in leverage ratio during 2022 implies an aggressive financing or investment phase, which led to a higher risk profile. Although total assets continued to grow, the comparatively larger increase in debt during this period was notable. By 2025, some deleveraging appears to have occurred, but the leverage ratio remains above historical lows, indicating a cautious post-expansion financial stance.

The total assets exhibit a general upward trajectory over the observed period, increasing from approximately 5.65 billion USD in September 2018 to a peak around 15.68 billion USD by March 2025. There are fluctuations along this timeline, with notable accelerations in growth between late 2018 and early 2019, as well as steady growth from 2020 through 2024. A slight decline is seen towards the end of the timeline, after December 2024.

The total KLA stockholders’ equity similarly shows an overall increase but with more pronounced volatility. Starting at about 1.57 billion USD in September 2018, equity more than doubles by early 2019, reaching above 2.8 billion USD in March 2019. It then experiences fluctuations, including a key trough around June 2022 where equity drops significantly to roughly 1.4 billion USD, a stark decline from previous quarters. Following this period, equity recovers steadily to approximately 4.0 billion USD by March 2025.

The financial leverage ratio, which measures the proportion of total assets financed by stockholders' equity, demonstrates variability reflective of these changes in assets and equity. Initially, the leverage ratio declines from 3.6 in September 2018 to around 2.89 by December 2021, suggesting a gradual reduction in reliance on debt financing relative to equity. However, there is a sharp, temporary increase in financial leverage beginning in early 2022, peaking near 9.0 in June 2022. This spike corresponds with the significant drop in stockholders’ equity observed at that time, indicating a period when assets were predominantly financed through debt. Following this peak, leverage declines steadily, reaching roughly 3.79 by March 2025, which is below the initial levels at the start of the period.

In summary, the financial data reflect consistent growth in asset base accompanied by fluctuations in equity, leading to considerable shifts in financial leverage. The marked increase in leverage in 2022 highlights a period of increased financial risk due to lower equity levels, but subsequent recovery demonstrates improved balance sheet strength by the end of the timeline.

The earnings before interest and tax (EBIT) demonstrate notable fluctuations with a general upward trajectory over the examined periods. Initially, EBIT begins at a high point near $454 million at the end of September 2018, then declines substantially through the first half of 2019, reaching a low around $154 million in March 2020. Following this trough, EBIT exhibits a strong recovery and sustained growth, surpassing previous highs and peaking at approximately $1.22 billion by the end of 2022. Despite some volatility, such as a dip in early 2023, the trend remains positive through to the latest reported period in March 2025, where EBIT reaches over $1.33 billion.

Interest expense remains relatively stable through much of the period, generally fluctuating in a range between $26 million and $44 million from late 2018 to mid-2022. A significant increase in interest costs occurs starting in late 2022, where expenses roughly double to the $74-83 million range. This elevated interest expense level persists throughout 2023 and into early 2025, indicating increased borrowing costs or higher debt levels during this interval.

The interest coverage ratio, which is the ratio of EBIT to interest expense, exhibits an inverse relationship with the interest expense trend, combined with EBIT fluctuations. Coverage ratios are not reported until early 2019 but then show a downward shift from 11.4 to around 8.12 in mid-2019, reflecting EBIT decreases and consistent interest costs. The ratio subsequently rebounds strongly in 2020 and 2021, growing steadily to a peak near 22.76 by the end of 2021, in line with rising EBIT and stable interest expenses.

From 2022 onwards, the interest coverage ratio declines progressively, dropping from about 20.31 at the end of 2022 to a low point near 11.0 in late 2023, before slightly recovering to approximately 14.66 by March 2025. This decline aligns with the noted increase in interest expenses and indicates a moderate reduction in the buffer between earnings and interest obligations, though the ratio remains comfortably above critical risk thresholds.

EBIT Trend

Overall upward trend with a marked dip in early 2020, followed by strong recovery and growth through early 2025.

Interest Expense Trend

Relatively stable until mid-2022, then roughly doubling and remaining elevated through 2025.

Interest Coverage Ratio

Initial decline in 2019, strong improvement until late 2021, then gradual decrease in 2022-2025 due to rising interest expenses, but remaining at satisfactory levels.

Insights

The company successfully improved operating profits significantly between 2020 and 2024, enhancing its earnings capacity. Increased interest expenses from 2022 onward suggest greater leverage or higher financing costs, which modestly compress interest coverage but not to alarming levels.