Shockwave Medical Inc. (NASDAQ:SWAV)

The analysis of the financial ratios over the examined quarterly periods indicates notable trends in the company’s profitability and financial structure.

Return on Assets (ROA)

ROA started at a significantly negative level in early 2020, with values around -25.86%. This negative trend continued through 2020 and into early 2021, albeit with some fluctuations. From mid-2021, there is a clear trend of improvement, with ROA moving into positive territory by March 2022, reaching a peak of 33.43% by December 2022. Following the peak, the ROA declines somewhat but remains positive, stabilizing around 9.4% to 9.95% in early 2024. This indicates a shift from inefficient use of assets generating losses to a period where asset utilization generates substantial profits, followed by a moderate decrease but sustained profitability.

Financial Leverage

This ratio was relatively stable and low during 2020 and 2021, fluctuating in a narrow range between 1.17 and 1.43. In 2022, financial leverage showed a slight reduction, dropping back toward 1.26 by December 2022, which suggests reduced reliance on debt or other leveraged instruments. However, starting in 2023, there was a marked increase in leverage, rising sharply to 2.45 in September 2023 before moderating to 2.19 by March 2024. This increase indicates a greater use of borrowed funds or other forms of financial leverage in recent periods, potentially to fund growth or other strategic investments.

Return on Equity (ROE)

ROE exhibited a similar pattern to ROA in showing initially negative returns, starting at -32.11% in early 2020 and worsening slightly into 2021. From mid-2021, ROE improved significantly, turning positive by March 2022 and peaking sharply at 42.24% in December 2022. This peak reflects a high level of shareholder value creation during this period. After peaking, ROE declined but remained strong, stabilizing in the low twenties by the first quarter of 2024. The pattern suggests improved profitability and efficient equity use, interrupted by some reduction in returns but maintaining overall positive performance.

Overall, the company transitioned from periods of negative profitability on both assets and equity in 2020 and early 2021 to sustained positive returns through 2022 and beyond. The increase in financial leverage in 2023 merits attention, as it may affect risk and future profitability. Despite the recent increase in leverage, the company maintained positive and relatively high returns on equity and assets, indicating effective leveraging of investments.

The financial data reveals several notable trends over the observed periods.

Net Profit Margin

The net profit margin demonstrated a pronounced improvement from a deeply negative value of -112.25% at the start of the period to a positive 20.75% by the end. The margin shifted from significant losses in early periods, with consistent negative values through 2020 and early 2021, to gradual gains culminating in a substantial and sustained positive margin starting in 2022. This suggests enhanced profitability and operational efficiency over time, after a prolonged phase of financial difficulties.

Asset Turnover

Asset turnover increased from a low ratio of 0.23 in the early period to peak around 0.9 in late 2022, indicating more effective utilization of assets to generate revenue. However, a decline followed in 2023, dropping to approximately 0.46-0.48 by the most recent quarter. This may reflect either a change in asset base or a temporary reduction in sales productivity relative to assets.

Financial Leverage

Financial leverage remained relatively stable around 1.2 to 1.4 for the initial years but experienced a pronounced increase starting in late 2023, peaking around 2.45 before slightly decreasing to 2.19. This indicates the company increased its reliance on debt or other liabilities in relation to equity towards the end of the period, which could affect risk profile and cost of capital.

Return on Equity (ROE)

The return on equity followed a trajectory similar to net profit margin, starting deeply negative at -32.11% and remaining negative through much of 2020 and 2021. Improvement became evident in late 2021, with ROE turning positive and rising to above 40% during 2022 and early 2023. In the most recent quarters, ROE decreased to around 22%, indicating a reduction from peak profitability levels but still reflecting a return that is above initial levels. This pattern suggests enhanced effectiveness in generating shareholder returns over time, tempered by more recent moderation.

The financial data reveals significant improvements and some fluctuations across key performance metrics over the observed quarters.

EBIT Margin

The EBIT margin shows a strong upward trend, starting from very negative values around -110% to -95% in early 2020 and substantially improving to positive territory by early 2022. It reaches approximately 25% consistently through 2023 and into early 2024, indicating a transition from operating losses to stable profitability.

Return on Equity (ROE)

ROE follows a similar improvement trajectory, moving from significant negative figures in 2020 to positive levels by early 2022, peaking above 40% in late 2022 and early 2023. Despite a decline to around 22% by the first quarter of 2024, the metric reflects a return to profitability and effective equity utilization after sustained losses.

Asset Turnover

Asset turnover improves markedly from around 0.18–0.25 in 2020 to a peak near 0.9 in late 2022, indicating enhanced efficiency in using assets to generate revenue. However, a decline occurs in late 2022 and 2023, dropping to around 0.46–0.48 by early 2024, suggesting a reduction in asset utilization efficiency in recent quarters.

Financial Leverage

Financial leverage remains relatively stable and low (around 1.17 to 1.43) through 2020 and 2021. A notable increase appears from late 2022 onwards, jumping to above 2.19 by early 2024. This rise indicates greater reliance on debt or equity financing, which may influence risk and return profiles.

Interest Burden

The interest burden ratio remains close to 1 throughout the observed quarters, fluctuating narrowly between 0.95 and 0.99, indicating relatively stable interest expenses relative to earnings before interest and taxes, with minimal adverse impact on profitability.

Tax Burden

The tax burden ratio is not reported until mid-2022, where it hovers slightly below 1 initially but then rises sharply to 1.79 by the end of 2022, indicating potential tax benefits or adjustments that lead to reported income exceeding pre-tax income in some periods. It later declines to about 0.85-0.89 by early 2024.

Overall, the data suggests a company that has transformed from heavy operating losses and negative returns on equity into a profitable and efficient entity by 2022. Notwithstanding, recent declines in asset turnover and increased financial leverage signal a need for cautious monitoring of operational efficiency and capital structure in the most recent periods.

Over the observed period, significant improvements in key profitability and efficiency metrics are evident. The net profit margin has experienced a notable transformation, progressing from substantial negative values early in the timeline toward positive territory beginning in the first quarter of 2022. Initially, margins were deeply negative, exceeding -100%, reflecting considerable losses relative to revenues. This downward trend gradually lessened through 2020 and 2021, with margins approaching break-even by late 2021. From 2022 onward, the company achieved and sustained positive net profit margins, peaking around 44% in late 2022, before moderating somewhat but remaining positive through early 2024.

Asset turnover, a measure of operational efficiency in generating sales from assets, shows a general upward trend from the start of 2020 through late 2022, increasing from 0.23 to a peak near 0.90. This indicates improved utilization of assets in generating revenue. However, following this peak, there is a noticeable decline in asset turnover's latter stage in 2023 and early 2024, settling around 0.46-0.48. Despite this decline, levels remain above the initial periods, signaling a sustained improvement compared to the starting point.

Return on assets (ROA), which integrates profitability and asset efficiency, mirrors the improvements seen in margin and asset turnover. ROA was deeply negative throughout 2020 and into early 2021, with values dropping below -25%. Starting mid-2021, ROA began moving toward positive values, with a distinct uptrend visible in 2022, reaching a high point exceeding 30% in late 2022. Subsequent periods show some decline in ROA, with the metric falling to about 10% in early 2024, yet still markedly higher than the initial negative readings.

Summary of Trends:

• Net profit margin transitioned from significant losses (over -100%) to consistent profitability exceeding 40% at its peak, reflecting major operational improvements and/or cost control.
• Asset turnover improved steadily through 2022, indicating enhanced revenue generation from existing assets, but then declined in 2023-2024, suggesting some drop in operational efficiency or changes in asset base utilization.
• Return on assets followed net margin and asset turnover trends, moving from large negative returns to strong positive performance before moderating, demonstrating a recovery and strengthening of overall asset profitability.

The data collectively illustrate a company that moved from heavy losses and underutilization of assets to a phase of marked profitability and efficient asset use, though some recent indicators point to a plateau or partial reversal in operational efficiency and returns. Monitoring the causes of the recent declines in asset turnover and ROA will be critical to sustaining positive margins and overall financial health going forward.

The financial performance exhibits notable trends over the observed periods, with significant improvements in profitability and asset utilization emerging since early 2021.

EBIT Margin

The EBIT margin demonstrates a pronounced upward trajectory, evolving from deeply negative percentages in early 2020 (approximately -110%) to positive double digits by 2022. This upward trend continues into 2023, stabilizing around 24-27%. The margin improvement suggests enhanced operational efficiency and cost management over time.

Asset Turnover

Asset turnover ratios have generally increased from a low base of around 0.18-0.25 in early 2020 to a peak of approximately 0.9 by late 2022. This indicates better utilization of assets to generate revenue. However, a decline is observable towards early 2024, with the ratio hovering near 0.46-0.48, hinting at potential challenges in sustaining asset efficiency.

Return on Assets (ROA)

ROA follows a pattern consistent with EBIT margin improvements, starting with significant negative returns around -25% in 2020. From 2021, there is steady progress toward positive territory, reaching a peak above 30% in late 2022 and early 2023. In more recent quarters, ROA has moderated to single-digit positive percentages, suggesting some volatility or return normalization following a strong growth phase.

Tax Burden

The tax burden ratio was not reported in initial periods but became available starting mid-2022. Ratios stood near 0.98-0.99 initially, indicating a stable tax expense relative to earnings. A spike occurs in late 2022, reaching 1.79, before gradually declining to 0.89 by early 2024, reflecting fluctuations in tax impact on earnings.

Interest Burden

The interest burden ratio remains relatively stable and close to 1.0 across all reported quarters beginning mid-2022, fluctuating narrowly between 0.95 and 0.99. This stability suggests consistent interest expense relative to earnings before interest and taxes, indicating manageable debt costs.

Overall, the company demonstrates a significant turnaround from negative profitability and low asset efficiency in early 2020 to improved margins, increased asset turnover, and positive returns on assets by 2023. Despite some recent softening in asset turnover and ROA, the general trend reflects enhanced operational performance and financial health. Stability in interest burden combined with variable tax burden signals manageable financing costs with some fluctuations in tax effects.

The financial data reveals significant trends in profitability and cost management over the observed periods. The key ratios and margins show a marked improvement from early stages of negative profitability towards sustained positive results in recent quarters.

Tax Burden Ratio

The tax burden ratio data is available from the third quarter of 2022 onwards. It remains close to unity initially, indicating minimal tax impact on profits during that time. There is a sharp spike at the fourth quarter of 2022 reaching 1.79, and it subsequently decreases steadily towards 0.89 by the first quarter of 2024. This trend suggests variability in tax expenses or adjustments affecting net income temporarily, followed by normalization.

Interest Burden Ratio

The interest burden ratio shows a consistent pattern just below 1.00 throughout the available quarters starting from the third quarter of 2022. Values slightly decline from 0.98 to 0.95 by the first quarter of 2024, indicating a marginally increasing impact of interest expenses on earnings before interest and taxes, but overall the interest burden remains relatively stable with limited influence on profitability.

EBIT Margin (%)

There is a clear, progressive improvement in EBIT margin from negative double digits starting at -110.18% in the first quarter of 2020, moving towards breakeven by the fourth quarter of 2021 with -3.26%, and then turning positive from the first quarter of 2022 onward. Positive margins increase significantly to over 24% by the end of the observed period in the first quarter of 2024. This indicates substantial operational improvements and enhanced efficiency in core earnings over time.

Net Profit Margin (%)

The net profit margin mirrors the EBIT margin trend with initial large negative values exceeding -112% in early 2020, improving sharply towards zero by the end of 2021 (-3.85%). From the first quarter of 2022, the margin turns positive and increases steadily, peaking at 44.1% in the fourth quarter of 2022. Subsequently, the margin declines but remains positive and stable around 20% by early 2024. The fluctuations suggest one-off gains or tax effects in late 2022 followed by stabilization in net profitability.

Overall, the financial ratios demonstrate a transition from significant losses to a period of profitable operations. The operational improvements and stable interest burden support sustainable profitability. Variations in tax burden reflect timing or structural changes in tax treatment, which coincide with peak net margins. The recent quarters show a consolidation phase with consistent positive margins indicating strong financial performance trends.