Shockwave Medical Inc. (NASDAQ:SWAV)

The analysis of the quarterly financial ratios reveals several notable trends over the observed periods. Attention is primarily drawn to the Return on Assets (ROA), Financial Leverage, and Return on Equity (ROE), which collectively provide insights into profitability, capital structure, and efficiency.

Return on Assets (ROA)

ROA was initially in negative territory starting from the fourth quarter of 2019, with a gradual decline reaching as low as -26.21% by the second quarter of 2021. However, a marked improvement is observed beginning in the third quarter of 2021, turning positive by the first quarter of 2022. This upward trend continues, peaking at 33.43% in the first quarter of 2023. After this peak, ROA declines somewhat but remains positive, ending at 9.95% in the first quarter of 2024. This pattern indicates an overall recovery and strengthening in asset profitability after a sustained period of losses.

Financial Leverage

The financial leverage ratio remained relatively stable, fluctuating in a narrow range between 1.17 and 1.43 through 2019 to 2022, suggesting consistent use of debt relative to equity. Notably, there is a significant increase in leverage from the third quarter of 2023, rising sharply to 2.45 and then moderating slightly but remaining elevated above 2. This increase could imply a strategic shift towards greater use of debt financing in more recent periods.

Return on Equity (ROE)

ROE also started from negative values similar to ROA, deepening to a low of -34.53% in the second quarter of 2021. A turnaround begins in the following quarters, with ROE turning positive by the first quarter of 2022 and reaching a high of 42.24% in the first quarter of 2023. After this peak, ROE remains strong though somewhat volatile, ending at 21.75% in the first quarter of 2024. The higher magnitude of ROE relative to ROA, especially in later periods, corresponds to the increased financial leverage, amplifying returns to equity holders.

In summary, the company demonstrated a challenging period of negative profitability through mid-2021, followed by a significant recovery in both asset and equity returns. The increase in financial leverage in the most recent quarters suggests a greater reliance on debt, which correlates with the maintained elevated ROE levels despite a decrease in ROA. This combination indicates improved operational efficiency and profitability, supported by an intensified capital structure strategy.

Net Profit Margin

The net profit margin shows a marked improvement over the periods analyzed, transitioning from significant negative values in 2019 and early 2020 to positive margins starting in early 2022. Initially, the margins were deeply negative, reaching as low as -126.34% in September 2019. Over subsequent quarters, there is a clear gradual reduction in losses, moving towards near breakeven by the end of 2021. Positive net profit margins begin to appear in the first quarter of 2022, improving steadily to reach a peak of 44.1% by December 2022. Following this peak, the margin experiences a slight decline but remains healthy and positive, fluctuating between 20.17% and 43.18% through the end of the data series in March 2024.

Asset Turnover

Asset turnover starts at relatively low levels in early 2020 at around 0.19 and shows a notable upward trend through 2021 and 2022, peaking at 0.9 in December 2022. This increase indicates an improving efficiency in the use of assets to generate revenue over the years. However, after this peak, there is a noticeable decline during 2023, with the ratio dropping back to approximately 0.46 - 0.48 by the first quarter of 2024. This decline suggests a potential reduction in utilization or efficiency in recent quarters after years of improvement.

Financial Leverage

Financial leverage remains relatively stable during most of the observed period, ranging between approximately 1.17 and 1.43 up to December 2022, indicating moderate use of debt relative to equity. Starting in 2023, leverage increases significantly, reaching a high of 2.45 in December 2023 before slightly declining to 2.19 in March 2024. This sharp increase in leverage suggests a strategic shift toward higher debt financing or changes in capital structure in recent periods.

Return on Equity (ROE)

Return on equity reflects a strong improvement trend similar to net profit margin. Initially, ROE is deeply negative during 2019 and most of 2020, with the lowest point around -34.53%. Starting late 2021, ROE improves substantially, crossing into positive territory at 10.82% in March 2022 and peaking at 42.24% in December 2022. After this peak, ROE remains robust but shows some volatility, slightly decreasing yet staying above 20% through to March 2024. This progression indicates progressively enhanced profitability and effective management of equity capital.

Tax Burden

The tax burden ratio is available from March 31, 2022, onwards, showing values close to 1.00 initially, indicating relatively low tax expense relative to earnings. However, in the quarters ending December 31, 2022, March 31, 2023, and June 30, 2023, the ratio spikes above 1.4, peaking at 1.79 and 1.64, which may indicate exceptional tax benefits or adjustments. After this peak, the tax burden declines sharply to below 1.0 in the last two observed quarters, suggesting normalization or the reversal of prior anomalies.

Interest Burden

The interest burden remains consistently high throughout the available periods, ranging narrowly from 0.95 to 0.99. This suggests stable interest expense relative to earnings before interest and taxes, with minimal fluctuation and a generally low burden from interest costs over time.

EBIT Margin

EBIT margin displays a significant and consistent improvement over the periods. Starting with deeply negative values around -117% in late 2019, the margin gradually improves, moving from severe operating losses to progressively smaller losses throughout 2020 and 2021. By early 2022, the margin turns positive, reaching over 25% by late 2023 and early 2024, indicating a strong shift from operating losses to profitable core operations with sustained positive margins close to 25%.

Asset Turnover

Asset turnover shows an initial low and fluctuating level between 0.18 and 0.31 from early 2020 to early 2021. Beginning in mid-2021, there is a marked upward trend, peaking at 0.90 in December 2022. However, this is followed by a decline starting in early 2023, dropping to approximately 0.46-0.48 in the last three quarters. This pattern reflects improving efficiency in utilizing assets to generate sales until late 2022, succeeded by a reduction in asset productivity in 2023.

Financial Leverage

Financial leverage increased gradually from about 1.2 in early periods up to 1.43 by late 2021. It then shows a minor downward trend through most of 2022, before experiencing a substantial jump in late 2023, reaching a peak above 2.4. This increase indicates a significant rise in the use of debt or other liabilities relative to equity, implying greater financial risk or aggressive capital structuring in recent periods.

Return on Equity (ROE)

ROE experienced considerable volatility and improvement over time. Initially, it was deeply negative, reaching below -30% in 2019 and early 2020, reflecting net losses and possibly high expenses. Beginning in mid-2021 to early 2022, ROE improves substantially, turning positive and climbing rapidly to over 40% by late 2022 and 2023. However, the most recent data points show a decline to around 22% in early 2024, indicating a reduction from peak profitability but maintaining a strong positive return for shareholders.

Net Profit Margin

The net profit margin experienced a significant improvement over the observed periods. Initially, the margins were deeply negative, reaching a low near -126% in late 2019. From 2020 onwards, there is a clear and steady upward trend, moving from large losses towards positive profitability. By early 2022, the margin turned positive, peaking above 44% in late 2022, before slightly moderating but remaining strong above 20% in early 2024. This shift indicates a substantial turnaround in profitability and operational efficiency.

Asset Turnover

Asset turnover displayed a generally positive trend, increasing from 0.19 in early 2019 to a peak near 0.9 by late 2022, suggesting improving efficiency in the utilization of assets to generate sales. However, after this peak, asset turnover declined to around 0.46–0.48 by early 2024, indicating a reduction in operational efficiency or asset utilization during recent quarters.

Return on Assets (ROA)

The return on assets followed a pattern similar to net profit margin, starting with negative returns in 2019 and 2020, reaching lows around -26%. From late 2020 onward, ROA improved markedly, crossing into positive territory by early 2022. It peaked at over 33% in late 2022 but subsequently showed a downward trajectory, declining to approximately 9–10% by early 2024. This suggests that while asset profitability improved substantially, recent periods have seen a reduction in the efficiency of asset use in generating profits.

The financial ratios indicate several distinct patterns over the examined periods, illustrating the company's operational and profitability trends.

EBIT Margin

The EBIT margin experienced significant improvement across the timeline. Initially, the margin was deeply negative, reaching a low point around -124% in the late 2019 and early 2020 quarters. Subsequently, there was a steady upward trend, moving from negative territory into positive margins beginning early 2022. By the most recent quarters in 2023 and early 2024, the EBIT margin consistently stabilized around 24-26%, demonstrating a transition from operational losses to sustained profitability.

Asset Turnover

Asset turnover displayed a generally positive trajectory, although with some fluctuations. Starting from a low base of 0.19 in early 2020, it rose substantially over the subsequent quarters to peak near 0.9 in late 2022, reflecting improved efficiency in using assets to generate revenue. However, there was a decline observed in 2023 down to around 0.46-0.48, signaling a possible decrease in asset utilization efficiency during that period.

Return on Assets (ROA)

The ROA closely mirrored the improvements seen in EBIT margin. It was negative until around late 2021 and early 2022 but showed a strong upward trend thereafter. The peak ROA of approximately 33% was reached in late 2022, indicating enhanced profitability relative to the asset base. Post-peak, ROA decreased significantly in 2023, falling to single digits by early 2024, which may suggest a reduction in overall asset profitability or increased asset base without proportional income growth.

Tax Burden

The tax burden ratio became available starting 2022, showing consistently high values close to 0.98-0.99 initially, then increasing sharply to about 1.79 in late 2022. Following this peak, the ratio decreased over subsequent quarters to below 1.0 by early 2024, which may indicate variances in tax expenses or tax-related accounting treatments influencing the effective tax rate on profits.

Interest Burden

The interest burden ratio remained relatively stable throughout the reported periods, ranging narrowly between 0.95 and 0.99. This indicates a consistent level of interest expense relative to earnings before interest and taxes, with no significant volatility noted in financial leverage costs during the timeframe.

In summary, the company transitioned from periods of operational loss to consistent profitability as indicated by EBIT margin and ROA improvements. Asset efficiency increased markedly but showed some softness in the more recent quarters. Tax burden fluctuations suggest shifts in tax-related factors, while stable interest burden ratios indicate steady financial costs. These collective trends point to overall operational improvement and profitability enhancement with some caution warranted on asset management and tax effects in recent periods.

EBIT Margin Trend

The EBIT margin exhibits significant improvement over the observed periods. Initially, the margin is deeply negative, exceeding -100% from the end of 2019 through early 2021, indicating operational losses. However, starting in early 2021, the margin steadily improves, transitioning from negative to positive territory by early 2022. The margin peaks above 25% during 2023 before slightly stabilizing around 24% in early 2024, reflecting enhanced operational efficiency and profitability.

Net Profit Margin Trend

The net profit margin follows a similar trajectory to the EBIT margin, with deep negative values indicating substantial losses through early 2021. Notably, the margin experiences a sharp positive spike at the end of 2022 (44.1%) and remains relatively high through 2023, though slightly declining thereafter. This trend suggests improved bottom-line profitability, albeit with some fluctuation toward the end of the period.

Tax Burden Ratio Analysis

The tax burden ratio remains stable at approximately 0.98 through mid-2022, suggesting consistent tax expenses relative to earnings. However, it shows increased variability thereafter, with a notable peak at 1.79 in late 2022 followed by a decline toward 0.89 in early 2024. Values over 1 indicate tax refunds or benefits exceeding pre-tax earnings in some periods, highlighting irregular tax effects or adjustments during late 2022 and early 2023.

Interest Burden Ratio Analysis

The interest burden ratio remains consistently near unity throughout the available data, fluctuating between 0.95 and 0.99. This stability indicates minimal impact of interest expenses on earnings, suggesting low levels of debt or efficient interest management during the periods observed.

Overall Insights

The financial performance shows a marked turnaround from substantial losses to robust profitability over the analyzed timeframe. Operational improvements are evident from the rising EBIT margin, while net profitability is strengthened, albeit with some volatility related to tax effects. The stability in interest burden underscores controlled financial leverage, supporting a healthier profit profile. The observed patterns reflect a significant recovery and growth phase in the company's financial results.