ON Semiconductor Corp. (NASDAQ:ON)

Debt Ratios

Over the observed period from 2019 to 2023, there is a clear downward trend in the debt-related ratios, indicating a gradual deleveraging of the company. The debt to equity ratio decreased significantly from 1.09 in 2019 to 0.43 in 2023, suggesting a consistent reduction in reliance on debt relative to shareholders' equity. This decline is mirrored in the debt to equity ratio including operating lease liabilities, which fell from 1.13 to 0.47.

Similarly, the debt to capital ratio, both excluding and including operating lease liabilities, showed a sustained decline from around 0.52 and 0.53 in 2019 to 0.30 and 0.32 in 2023 respectively. This points to a lower proportion of debt in the company's overall capital structure over time.

Debt to assets ratios also followed a decreasing pattern, dropping from 0.43 (0.44 including operating lease liabilities) in 2019 to 0.25 (0.27) in 2023, indicating that the company's assets are progressively less financed by debt.

Financial Leverage

The financial leverage ratio decreased from 2.55 in 2019 to 1.70 in 2023. This decline signals that the company has been reducing its use of financial leverage over the years, reflecting a stronger equity base relative to total assets. This trend aligns with the reductions observed in the debt ratios.

Interest and Fixed Charge Coverage

There is a notable improvement in the interest coverage ratio, which surged from 2.87 in 2019 to 34.9 in 2023. This significant increase indicates that the company’s earnings before interest and taxes have grown substantially relative to its interest expenses, enhancing its ability to meet interest obligations comfortably.

Similarly, fixed charge coverage improved markedly, rising from 2.46 in 2019 to 20.57 in 2023. This suggests a strengthened capacity to cover fixed financial obligations, which may include interest and lease payments, reflecting improved operational performance and financial stability.

Overall Analysis

The financial data reveal a consistent strengthening of the company's balance sheet from 2019 to 2023, characterized by a lower reliance on debt financing and enhanced ability to service financial obligations. The reductions across debt to equity, debt to capital, and debt to assets ratios, combined with improved coverage ratios, indicate improved financial health and reduced risk exposure. This trend may also reflect strategic efforts to deleverage and enhance profitability, contributing to increased investor confidence and operational flexibility.

The financial data exhibits notable trends in debt, equity, and leverage ratios over the five-year period from 2019 to 2023.

Total Debt

The total debt decreased from 3,612,500 US$ thousands in 2019 to a low of 3,097,500 US$ thousands in 2021, indicating a reduction in financial liabilities. However, there was a modest increase thereafter, reaching 3,359,800 US$ thousands by the end of 2023. Overall, the trend depicts a slight net decrease in debt levels over the period, with some fluctuations.

Total Stockholders’ Equity

There was a consistent and significant increase in stockholders’ equity throughout the period, rising from 3,301,700 US$ thousands in 2019 to 7,782,600 US$ thousands in 2023. This growth reflects a substantial strengthening of the company’s equity base, more than doubling within five years.

Debt to Equity Ratio

The debt to equity ratio improved substantially, decreasing from 1.09 in 2019 to 0.43 in 2023. This downward trend signals a lower reliance on debt financing relative to equity and suggests an improvement in the company’s capital structure and financial stability. The ratio’s decline aligns with the growth in equity and the reduction or stabilization of debt levels.

Total Debt (including operating lease liability)

The total debt exhibits a downward trend from 2019 to 2021, decreasing from approximately 3,726.5 million US dollars in 2019 to 3,272.4 million in 2021. However, in the subsequent years, 2022 and 2023, the total debt slightly increases again, reaching 3,512.4 million and 3,623.8 million US dollars respectively. Despite the rise in the last two years, the overall debt level in 2023 remains below the 2019 amount.

Total Stockholders’ Equity

The stockholders' equity shows a consistent and significant upward trajectory throughout the entire period. Starting at 3,301.7 million US dollars in 2019, it increases each year, reaching 7,782.6 million US dollars by the end of 2023. This reflects a strong growth in the equity base of the company over five years, more than doubling from the initial figure.

Debt to Equity Ratio (including operating lease liability)

The debt to equity ratio declines steadily over the five-year period, moving from a high of 1.13 in 2019 to 0.47 in 2023. This decreasing ratio indicates an improvement in the company's financial leverage position. The ratio's decline reflects that the company is increasingly financed by equity rather than debt, due to both the reduction in debt levels and the growth of equity, with equity growth being the more pronounced factor.

Total Debt

The total debt showed a general declining trend from 2019 to 2021, decreasing from approximately $3.61 billion in 2019 to about $3.10 billion in 2021. However, this decline reversed in subsequent years, with debt increasing moderately to approximately $3.23 billion in 2022 and further to around $3.36 billion in 2023.

Total Capital

Total capital exhibited a consistent upward trend throughout the five-year period. Beginning at roughly $6.91 billion in 2019, total capital increased gradually to approximately $7.03 billion in 2020, then continued to grow more rapidly, reaching near $7.68 billion in 2021, $9.42 billion in 2022, and $11.14 billion in 2023. This reflects significant capital expansion, particularly in the last two years.

Debt to Capital Ratio

The debt to capital ratio declined steadily from 2019 through 2023, starting at 0.52 in 2019 and dropping to 0.5 in 2020, then further to 0.4 in 2021. The downward trend continued with the ratio decreasing to 0.34 in 2022 and reaching 0.3 by the end of 2023. This indicates a gradual reduction in the proportion of debt financing relative to total capital over this period.

Total Debt (including operating lease liability)

The total debt exhibited a decreasing trend from 2019 through 2021, descending from approximately $3.73 billion to $3.27 billion. However, a reversal occurred in the subsequent years, with debt rising to $3.51 billion in 2022 and further to $3.62 billion in 2023. This pattern suggests an initial effort to reduce leverage followed by renewed borrowing or assumed liabilities in the last two years.

Total Capital (including operating lease liability)

Total capital demonstrated consistent growth throughout the period under review. Starting at about $7.03 billion in 2019, total capital increased steadily each year, reaching approximately $11.41 billion by 2023. The most significant rises occurred in 2022 and 2023, indicating expansion possibly funded through equity or retained earnings alongside the operating lease liabilities.

Debt to Capital Ratio (including operating lease liability)

The debt to capital ratio showed a pronounced downward trend over the five-year span, declining from 0.53 in 2019 to 0.32 in 2023. This decreasing leverage ratio indicates an improving capital structure characterized by a reduction in reliance on debt relative to the total capital base. The drop is consistent with the observed growth in total capital outpacing the increases or stabilization in total debt.

Overall Analysis

The financial data indicates a strategic shift towards strengthening the capital base and reducing financial leverage over the period. Despite a modest increase in absolute total debt in the final two years, the substantial rise in total capital led to a continued reduction in the debt-to-capital ratio. This suggests improved financial stability and potentially greater capacity for investment or risk absorption. The trends signal prudent management of capital structure, prioritizing lower leverage while supporting growth.

Total debt

The total debt decreased from 3,612,500 thousand USD in 2019 to 3,097,500 thousand USD in 2021, indicating a reduction in liabilities during this period. However, it slightly increased afterward, reaching 3,359,800 thousand USD by the end of 2023. This reflects a moderate rise in debt levels in the last two years, albeit still below the 2019 value.

Total assets

Total assets showed a consistent upward trend throughout the five-year period, growing from 8,425,500 thousand USD in 2019 to 13,215,200 thousand USD in 2023. The most significant increases occurred between 2021 and 2023, suggesting considerable asset accumulation and expansion during these later years.

Debt to assets ratio

The debt to assets ratio steadily decreased over the analyzed period, starting at 0.43 in 2019 and declining to 0.25 by the end of 2023. This improvement indicates enhanced financial leverage and a stronger asset base relative to debt, reflecting a lower reliance on debt financing over time.

Total debt (including operating lease liability)

The total debt experienced a gradual reduction from 3,726,500 thousand US dollars at the end of 2019 to 3,272,400 thousand US dollars by the end of 2021. After this period of debt reduction, the total debt increased slightly to 3,512,400 thousand in 2022 and further to 3,623,800 thousand in 2023. This indicates a trend where debt was carefully managed and reduced initially, followed by a moderate increase in recent years.

Total assets

Total assets have exhibited consistent growth over the five-year period. Starting from 8,425,500 thousand US dollars at the end of 2019, assets grew to 8,668,000 thousand in 2020, then expanded more substantially to 9,626,000 thousand in 2021. The growth accelerated further in 2022 and 2023, reaching 11,978,500 thousand and 13,215,200 thousand, respectively. This steady increase suggests a successful expansion or accumulation of resources.

Debt to assets (including operating lease liability)

The debt-to-assets ratio demonstrates a declining trend throughout the period under review. Starting at 0.44 in 2019, the ratio steadily decreased each year to 0.42 in 2020, 0.34 in 2021, 0.29 in 2022, and finally 0.27 in 2023. This indicates an improvement in the company's leverage position, with debt growing at a slower rate or being reduced relative to asset growth, enhancing the balance sheet's strength over time.

Total assets

The total assets have demonstrated a consistent upward trend over the five-year period. Starting from approximately 8.43 billion US dollars in 2019, the assets increased steadily each year, reaching around 13.22 billion US dollars by the end of 2023. This growth indicates ongoing expansion or acquisition of resources.

Total stockholders’ equity

Stockholders’ equity has also increased significantly over the years. Beginning at roughly 3.30 billion US dollars in 2019, equity rose each year, accelerating particularly from 2021 onwards. By 2023, equity had grown to approximately 7.78 billion US dollars. This suggests improved retained earnings or capital inflows enhancing the company's net asset base.

Financial leverage ratio

The financial leverage ratio has shown a consistent decline from 2.55 in 2019 to 1.7 in 2023. This trend reflects a reduction in the company's reliance on debt relative to equity. A decreasing leverage ratio generally indicates a strengthening balance sheet and potentially lower financial risk.

Earnings before interest and tax (EBIT)

The EBIT exhibited a significant upward trend over the five-year period. Starting at approximately 425 million in 2019, the figure dipped in 2020 to 345 million, reflecting a contraction that year. From 2021 onward, EBIT increased markedly, reaching nearly 1.29 billion in 2021 and then surging to about 2.46 billion in 2022. The growth continued in 2023, with EBIT peaking at around 2.61 billion. Overall, this represents a strong recovery and expansion in operating profitability after a brief decline.

Interest Expense

Interest expense showed a general declining trend after peaking in 2020. It rose from around 148 million in 2019 to approximately 168 million in 2020, which might indicate increased borrowing or higher interest rates in that year. From 2021 onward, interest expense steadily decreased, first to about 130 million, then to roughly 95 million in 2022, and further down to approximately 75 million in 2023. This decline could suggest improved debt management, refinancing at more favorable terms, or reduction in debt levels.

Interest Coverage Ratio

The interest coverage ratio improved significantly over the period analyzed, indicating enhanced ability to meet interest obligations from operating earnings. Starting at 2.87 in 2019, the ratio declined to 2.05 in 2020, reflecting the lower EBIT and higher interest expense combination. Subsequently, it increased dramatically due to the rising EBIT and falling interest expenses, reaching 9.88 in 2021 and then sharply rising to 25.89 in 2022. The upward trajectory continued to 34.9 in 2023, demonstrating a strong capacity to cover interest charges and suggesting a substantially lower financial risk profile compared to the earlier years.

The financial data indicates significant changes in earnings and fixed charges over the five-year period.

Earnings before fixed charges and tax

The earnings fluctuated initially, decreasing from 466.5 million USD in 2019 to 391.5 million USD in 2020. Subsequently, there was a strong recovery and growth, with earnings reaching 1.33 billion USD in 2021, then sharply increasing to 2.52 billion USD in 2022, followed by a moderate rise to 2.67 billion USD in 2023. This reflects substantial improvement and expansion in operating profitability from 2021 onwards.

Fixed charges

Fixed charges showed a declining trend over the years. Starting at 189.9 million USD in 2019, fixed charges increased slightly to 214.9 million USD in 2020. Since then, they consistently decreased, falling to 175.9 million USD in 2021, then to 155.1 million USD in 2022, and further down to 129.6 million USD in 2023. This reduction may indicate either lower interest or lease expenses or a restructuring of fixed obligations.

Fixed charge coverage ratio

The fixed charge coverage ratio illustrates the company's ability to cover fixed charges from earnings before fixed charges and tax. The ratio decreased from 2.46 in 2019 to 1.82 in 2020, signaling a comparatively weaker coverage. However, a significant turnaround occurred in 2021 when the ratio increased sharply to 7.58, followed by a further substantial rise to 16.23 in 2022 and 20.57 in 2023. This trend highlights a markedly improved capacity to meet fixed financial obligations, likely driven by higher earnings and lower fixed charges.