Synopsys Inc. (NASDAQ:SNPS)

The financial performance, as indicated by Return on Assets (ROA) and Financial Leverage, demonstrates a fluctuating pattern over the observed period. Return on Equity (ROE), a product of these two components, exhibits corresponding variability. An initial period of relative stability is followed by a period of growth, then a significant shift in the most recent quarters.

Return on Assets (ROA)

ROA generally increased from 9.02% in January 2021 to a peak of 13.33% in January 2024. This suggests improving efficiency in asset utilization. However, a substantial decline is observed in the latter part of the period, falling to 2.76% by October 2025. This decrease warrants further investigation to determine the underlying causes, such as potential asset impairments or reduced profitability.

Financial Leverage

Financial Leverage remained relatively stable between 1.64 and 1.71 for the majority of the period, indicating a consistent level of debt financing relative to equity. A notable increase to 2.40 is observed in April 2025, followed by a decrease to 1.75 in July 2025 and 1.70 in October 2025. This fluctuation suggests a change in capital structure strategy or financing activities.

Return on Equity (ROE)

ROE mirrored the trends in ROA and Financial Leverage. It rose from 14.80% in January 2021, peaking at 21.10% in January 2024, driven by both increasing ROA and relatively stable leverage. The subsequent decline in ROA, coupled with the leverage fluctuations, resulted in a significant drop in ROE to 4.70% by October 2025. The substantial decrease in ROE highlights the impact of declining asset profitability and changing capital structure on shareholder returns.

The period between January 2021 and January 2024 demonstrates a positive trend in profitability and returns. However, the most recent quarters reveal a concerning reversal, particularly in ROA and consequently ROE. The increase in financial leverage in April 2025, followed by a slight decrease, requires further scrutiny to understand its impact on the overall financial health of the entity.

The interplay between ROA and Financial Leverage clearly dictates the ROE. The recent decline in ROA appears to be the primary driver of the overall decrease in ROE, although changes in leverage also contribute to the observed volatility.

The three-component DuPont analysis reveals fluctuating performance over the observed period. Return on Equity (ROE) demonstrates an overall upward trend, though with significant quarterly variations. This ROE movement is driven by changes in Net Profit Margin, Asset Turnover, and Financial Leverage, which exhibit distinct patterns.

Net Profit Margin

The Net Profit Margin generally increased from 18.91% in January 2021 to a peak of 36.94% in October 2024. Prior to this peak, the margin fluctuated between approximately 18% and 21% for several quarters. A substantial decline to 18.89% is then observed in January 2025, followed by further decreases to 18.89% and 18.89% in subsequent quarters. This suggests a recent weakening in profitability.

Asset Turnover

Asset Turnover remained relatively stable between 0.48 and 0.57 from January 2021 through October 2023. A marked decrease begins in January 2024, falling to 0.47, then 0.26, and continuing to 0.13 and 0.15 in the final two quarters. This indicates a significant reduction in the efficiency with which assets are being used to generate sales.

Financial Leverage

Financial Leverage exhibited a gradual increase from 1.64 in January 2021 to 1.71 in October 2022. It then decreased to 1.58 in January 2023 and continued to decline to 1.45 by October 2024. A substantial increase is observed in April 2025, rising to 2.40, followed by a decrease to 1.75 and 1.70 in the subsequent quarters. This suggests a more aggressive use of debt in the most recent period, followed by a partial reduction.

The increase in ROE from 2021 to 2024 was initially supported by improvements in both Net Profit Margin and Asset Turnover, alongside moderate Financial Leverage. However, the substantial decline in Asset Turnover in 2025, despite a temporary increase in Financial Leverage, contributed to a significant drop in ROE. The recent surge in Net Profit Margin in late 2024 appears to have been short-lived, as it declined sharply in early 2025. The interplay between these three components suggests a shift in the company’s performance drivers, with a growing reliance on profitability and leverage to offset declining asset efficiency.

The volatility in the most recent quarters warrants further investigation to understand the underlying causes of the changes in Asset Turnover and Net Profit Margin. The significant increase in Financial Leverage in April 2025 also requires scrutiny to assess potential risks associated with increased debt levels.

The five-component DuPont analysis reveals significant fluctuations in the drivers of Return on Equity (ROE) over the observed period. While ROE generally trended upwards from early 2021 to late 2023, a substantial decline is evident in the most recent quarters. This analysis details the contributions of each component to these observed changes.

Tax Burden

The tax burden remained relatively stable between 0.93 and 1.01 for most of the period. A noticeable decrease occurred in late 2022, reaching 0.88, and continued to decline, hitting 0.76 in the final period. This suggests an increasing benefit from tax-related factors, potentially due to changes in tax laws or effective tax rate management, though the impact is more pronounced in the latter part of the observation window.

Interest Burden

The interest burden exhibited remarkable stability at 1.00 for the majority of the analyzed timeframe. A slight decrease began in early 2024, falling to 0.99 and then further to 0.94, 0.88, and finally 0.76. This indicates a decreasing impact of interest expense on profitability, potentially stemming from debt reduction or favorable interest rate adjustments.

EBIT Margin

The EBIT margin demonstrated a consistent upward trend from 18.76 in early 2021 to a peak of 39.14 in late 2022. This indicates improving operational efficiency and profitability. However, the margin experienced a significant decline in 2023 and 2024, falling to 26.01 and then further to 7.23. This suggests a weakening of core profitability, potentially due to increased costs, pricing pressures, or shifts in product mix.

Asset Turnover

Asset turnover showed a gradual increase from 0.48 to 0.57 between early 2021 and late 2023, indicating improved efficiency in utilizing assets to generate revenue. However, a sharp decline is observed in the most recent periods, dropping to 0.26 and then 0.13 and 0.15. This suggests a significant decrease in the effectiveness of asset utilization, potentially due to overinvestment in assets or a decline in sales.

Financial Leverage

Financial leverage generally increased from 1.64 in early 2021 to 1.71 in late 2022, indicating a greater reliance on debt financing. A subsequent decrease to 1.40 in early 2025 suggests a reduction in debt levels or a more conservative capital structure. The final period shows a substantial increase to 2.40, indicating a significant re-introduction of financial leverage.

The initial increase in ROE was primarily driven by improvements in EBIT margin, asset turnover, and moderate increases in financial leverage. However, the recent decline in ROE is attributable to the substantial decreases in both asset turnover and EBIT margin, despite the benefits from decreasing tax and interest burdens. The significant increase in financial leverage in the final period may exacerbate risks associated with the declining profitability and asset utilization.

The financial performance, as indicated by the two-component disaggregation of Return on Assets (ROA), exhibits notable fluctuations over the observed period. Generally, ROA demonstrates an increasing trend from early 2021 through late 2023, followed by a significant decline into early 2025. This overall pattern is driven by concurrent movements in Net Profit Margin and Asset Turnover.

Net Profit Margin

The Net Profit Margin generally increased from 18.91% in January 2021 to a peak of 36.94% in October 2024. Prior to this peak, the margin experienced moderate volatility, ranging between approximately 18% and 21% for much of 2021 and 2022. The substantial increase in late 2024 is a significant development. However, a sharp decrease is then observed, falling to 18.89% by January 2025 and further to 4.14% by July 2025, suggesting a potential shift in profitability. The final reported value in October 2025 is 2.76%.

Asset Turnover

Asset Turnover remained relatively stable between January 2021 and July 2022, fluctuating within a narrow range of 0.48 to 0.53. A gradual increase continued through October 2023, reaching 0.57. However, a pronounced decline began in January 2024, falling to 0.47 by October 2024, and continuing to 0.26 by April 2025, and finally to 0.13 and 0.15 in July and October 2025 respectively. This indicates a decreasing efficiency in utilizing assets to generate revenue.

The increase in ROA from 2021 to 2023 was initially supported by both increasing Net Profit Margin and Asset Turnover. However, the substantial ROA decline in early 2025 is primarily attributable to the dramatic decrease in Asset Turnover, despite a brief period of high Net Profit Margin in late 2024. The subsequent decline in Net Profit Margin further exacerbates the ROA decrease. The interplay between these two components suggests a changing operational dynamic, with a shift from efficient asset utilization and moderate profitability to a period of lower asset efficiency and significantly reduced profitability.

Return on Assets (ROA)

ROA increased from 9.02% in January 2021 to 13.33% in January 2023, peaking at 11.90% in October 2023. The subsequent decline is substantial, falling to 9.11% by April 2025 and further to 4.14% and 2.76% in July and October 2025, respectively. This mirrors the combined effect of the trends in Net Profit Margin and Asset Turnover, highlighting a weakening overall return on investment in assets.

The financial performance, as indicated by the four-component DuPont analysis, reveals notable shifts over the observed period. Return on Assets (ROA) experienced fluctuations, initially increasing from 9.02% to 10.21% between January 2021 and January 2022, peaking at 11.90% in October 2023, before declining to 2.76% by October 2025. This ROA trajectory is driven by interplay between profitability, efficiency, and financial leverage, as detailed below.

Tax Burden

The tax burden generally remained stable, fluctuating between 0.88 and 1.01. A slight downward trend is observable from 2021 through 2023, followed by a more pronounced decrease in 2024 and 2025, reaching 0.76 by October 2025. This suggests a decreasing effective tax rate, potentially due to changes in tax regulations or the geographic distribution of profits.

Interest Burden

The interest burden remained consistently high at 1.00 for the majority of the period, indicating that earnings before interest and taxes (EBIT) consistently covered interest expense. However, a significant decline is observed in 2025, falling to 0.88 in April and further to 0.76 in October. This suggests a substantial improvement in the company’s ability to cover its interest obligations, potentially due to reduced debt levels or increased earnings.

EBIT Margin

The EBIT margin demonstrated a generally positive trend, increasing from 18.76% in January 2021 to a peak of 39.14% in October 2022. While fluctuating, the margin remained above 20% for much of the period. A significant decline is then observed in 2025, falling to 26.01% in July and 9.11% in January, indicating a weakening of core profitability. This decline is a key driver of the overall ROA decrease in the latter part of the period.

Asset Turnover

Asset turnover exhibited an initial increase from 0.48 in 2021 to 0.57 in 2023, suggesting improved efficiency in utilizing assets to generate revenue. However, a sharp and consistent decline is evident from 2024 onwards, reaching 0.13 in July 2025 and 0.15 in October 2025. This substantial decrease in asset turnover is a significant contributor to the declining ROA, indicating a reduced ability to generate sales from its asset base. This could be due to factors such as decreased sales, increased asset holdings, or a combination of both.

In summary, the initial increase in ROA was supported by improvements in both profitability (EBIT margin) and efficiency (asset turnover). However, the subsequent decline in ROA is primarily attributable to the dramatic decrease in asset turnover, compounded by a weakening EBIT margin in the most recent periods. The decreasing tax and interest burdens partially offset these negative trends, but were insufficient to maintain the earlier levels of ROA. The significant shifts in asset turnover and EBIT margin warrant further investigation to understand the underlying operational and market factors driving these changes.

The information presents a quarterly view of several financial metrics related to profitability, specifically focusing on the components influencing net profit margin. A general trend of increasing profitability is observed from 2021 through late 2024, followed by a notable decline in the most recent periods. The analysis below details the observed patterns for each metric and their combined effect.

Tax Burden

The tax burden generally remained stable between 1.00 and 1.01 from January 2021 to October 2022. A slight decrease is noted in late 2022, falling to 0.88, and this lower level persists through early 2024. From April 2024 onwards, the tax burden begins to increase, reaching 0.98 by July 2025, suggesting a shift in the effective tax rate or taxable income.

Interest Burden

The interest burden remained consistently at 1.00 for the majority of the observed period, indicating no significant impact from interest expenses on earnings. However, a noticeable decline begins in April 2024, decreasing to 0.99, 0.98, and ultimately 0.76 by October 2025. This suggests a substantial reduction in interest expense relative to earnings, potentially due to debt repayment or favorable refinancing terms.

EBIT Margin

The EBIT margin demonstrates considerable fluctuation. It begins around 18.76% in January 2021 and generally increases to a peak of 26.60% in July 2024. A dramatic surge is observed in October 2024, reaching 39.14%, followed by a decrease to 34.75% in January 2025 and 31.04% in July 2025. This indicates strong operational performance, particularly in late 2024, but also a recent softening of profitability at the operating level.

Net Profit Margin

The net profit margin mirrors the trend of the EBIT margin, starting at 18.91% in January 2021 and increasing to 24.60% in July 2024. The substantial increase in EBIT margin in October 2024 translates to a significant jump in net profit margin, reaching 36.94%. However, a marked decline is then observed, with the net profit margin falling to 18.89% by October 2025. This decline is likely attributable to the combined effect of the decreasing EBIT margin and the increasing tax burden, partially offset by the decreasing interest burden.

In summary, the period from 2021 to mid-2024 demonstrates a consistent improvement in profitability, culminating in exceptionally strong results in late 2024. However, the most recent quarters reveal a concerning trend of declining net profit margin, driven primarily by a reduction in the EBIT margin and a rise in the tax burden. The decreasing interest burden provides some mitigation, but is insufficient to offset the other negative influences. Further investigation into the factors driving the recent decline in EBIT margin is warranted.