Synopsys Inc. (NASDAQ:SNPS)

An examination of long-term activity ratios reveals generally positive trends in asset utilization from 2020 through 2023, followed by indications of declining efficiency in 2024 and 2025. The ratios suggest a shift in how effectively assets are being leveraged to generate revenue.

Net Fixed Asset Turnover

The net fixed asset turnover ratio demonstrates a consistent upward trend from 7.62 in 2020 to 10.51 in 2022, indicating increasing efficiency in utilizing fixed assets to generate sales. While a slight decrease to 10.48 was observed in 2023, the ratio continued to rise to 10.88 in 2024 before declining to 10.13 in 2025. This suggests a peak in fixed asset utilization followed by a modest reduction in efficiency.

Net Fixed Asset Turnover (Including Operating Lease, Right-of-Use Asset)

Similar to the standard net fixed asset turnover, this ratio also exhibits growth from 3.88 in 2020 to 5.19 in 2023, reflecting improved utilization when considering operating leases and right-of-use assets. The ratio then increased to 5.43 in 2024, before decreasing to 5.04 in 2025. The inclusion of these lease assets appears to moderate the overall turnover rate compared to the standard calculation, but the trend mirrors the standard ratio’s pattern of initial growth and subsequent decline.

Total Asset Turnover

The total asset turnover ratio shows an increase from 0.46 in 2020 to 0.57 in 2023, indicating improved efficiency in utilizing all assets to generate revenue. However, a significant decrease to 0.47 in 2024 is followed by a substantial drop to 0.15 in 2025. This sharp decline suggests a considerable reduction in the effectiveness of asset utilization, potentially due to increased asset holdings without a corresponding increase in sales, or a significant decrease in sales.

Equity Turnover

The equity turnover ratio follows a similar pattern to the total asset turnover, increasing from 0.75 in 2020 to 0.95 in 2023, indicating improved efficiency in generating sales from equity financing. A decrease to 0.68 in 2024 is followed by a substantial decline to 0.25 in 2025. This mirrors the trend in total asset turnover, suggesting a weakening relationship between equity and revenue generation.

The pronounced declines in both total asset and equity turnover ratios in 2025 warrant further investigation. These decreases, contrasting with the earlier positive trends, suggest a potential shift in operational efficiency or a significant change in the company’s asset base or revenue generation capabilities.

The net fixed asset turnover ratio demonstrates an overall increasing trend from 2020 to 2024, followed by a slight decrease in 2025. This indicates a changing relationship between revenue generated and the investment in fixed assets over the observed period.

Overall Trend

The ratio increased from 7.62 in 2020 to 10.88 in 2024, representing a substantial improvement in the efficiency with which fixed assets are used to generate revenue. However, a minor decline to 10.13 is noted in 2025.

Revenue Growth

Revenue consistently increased throughout the period, moving from US$3,685,281 thousand in 2020 to US$7,054,178 thousand in 2025. This growth is a primary driver of the initial increase in the net fixed asset turnover ratio.

Fixed Asset Investment

Property and equipment, net, experienced fluctuations. While initially decreasing from 2020 to 2021, it remained relatively stable before increasing significantly in 2023 and 2024, reaching US$696,693 thousand in 2025. The slower growth in fixed assets relative to revenue contributed to the rising turnover ratio until 2024.

Ratio Dynamics

The ratio’s peak in 2024 suggests enhanced operational efficiency or a strategic shift towards maximizing revenue from existing assets. The subsequent decrease in 2025, despite continued revenue growth, could indicate increased investment in fixed assets that have not yet fully translated into proportional revenue gains, or a change in the composition of those assets.

In summary, the net fixed asset turnover ratio reflects a period of improving asset utilization, culminating in 2024, followed by a modest adjustment in 2025. Continued monitoring of this ratio alongside investment in property and equipment will be important to assess future trends.

The net fixed asset turnover ratio demonstrates a generally positive trend over the observed period, indicating increasing efficiency in utilizing fixed assets to generate revenue. Revenue consistently increased year-over-year, while the value of property, plant, and equipment, net of accumulated depreciation and including operating lease right-of-use assets, also rose, though at a slower pace than revenue in most years.

Overall Trend

The net fixed asset turnover ratio increased from 3.88 in 2020 to 5.19 in 2023, representing a substantial improvement in asset utilization. The ratio peaked in 2023 before experiencing a slight decrease to 5.04 in 2025. This suggests that while asset utilization remains strong, the rate of improvement has slowed.

Year-over-Year Changes

From 2020 to 2021, the ratio increased by 0.47, driven by a larger percentage increase in revenue compared to the increase in fixed assets. A further increase of 0.52 was observed from 2021 to 2022, and another increase of 0.32 from 2022 to 2023. The increase from 2024 to 2025 was minimal, with a decrease of 0.09, indicating a potential stabilization or slight decline in the efficiency of fixed asset utilization.

Revenue and Fixed Asset Relationship

The consistent growth in revenue, coupled with a more moderate increase in net fixed assets, contributed to the upward trend in the turnover ratio. The company appears to be effectively leveraging its existing asset base to generate higher sales. The slight decrease in the ratio in 2025 could be attributed to a proportionally larger investment in fixed assets relative to revenue growth in that year.

The observed trend suggests effective management of fixed assets and a strong correlation between asset investment and revenue generation. Continued monitoring of this ratio is recommended to assess whether the slight decline in 2025 represents a temporary fluctuation or the beginning of a more pronounced trend.

The total asset turnover ratio exhibits a fluctuating pattern over the observed period. Initially, the ratio demonstrates an increasing trend, followed by a decline and a substantial drop in the most recent year.

Overall Trend

From 2020 to 2023, the total asset turnover ratio generally increased, indicating improving efficiency in utilizing assets to generate revenue. However, this positive trend reversed in 2024 and experienced a significant decrease in 2025.

Detailed Analysis (2020-2023)

The ratio rose from 0.46 in 2020 to 0.57 in 2023. This suggests that the company became progressively more effective at converting its assets into sales during this timeframe. The increase indicates better asset management or a more efficient sales process.

Detailed Analysis (2024-2025)

In 2024, the total asset turnover ratio decreased to 0.47, representing a slight pullback from the previous year’s peak. This could be attributed to a slower growth in revenue relative to asset growth. However, the most significant change occurred in 2025, where the ratio plummeted to 0.15. This substantial decline suggests a considerable inefficiency in asset utilization, potentially due to a large increase in total assets without a corresponding increase in revenue.

Asset Growth vs. Revenue Growth

While revenue consistently increased from 2020 to 2025, the rate of asset growth accelerated significantly in 2025. The disproportionate increase in total assets compared to revenue is the primary driver of the dramatic reduction in the total asset turnover ratio in that year. This suggests potential over-investment in assets or a delay in realizing returns from those investments.

The observed trend warrants further investigation to understand the factors contributing to the substantial decrease in asset turnover in 2025. A detailed review of the asset composition and revenue generation strategies is recommended.

The equity turnover ratio exhibits a fluctuating pattern over the observed period. Initially, the ratio demonstrates an increasing trend, followed by a decline in later years.

Overall Trend

From 2020 to 2023, the equity turnover ratio generally increased, indicating a more efficient utilization of shareholders’ equity in generating revenue. However, from 2023 to 2025, a significant downward trend is apparent.

Initial Increase (2020-2023)

The equity turnover ratio rose from 0.75 in 2020 to 0.95 in 2023. This suggests that the company was becoming increasingly effective at generating sales for each dollar of equity invested. The increase could be attributed to improved operational efficiency, effective asset management, or a combination of both.

Subsequent Decline (2023-2025)

A notable decrease in the equity turnover ratio is observed from 2023 onwards. The ratio declined to 0.68 in 2024 and further to 0.25 in 2025. This substantial drop indicates a significantly reduced efficiency in utilizing equity to generate revenue. The primary driver of this decline appears to be the considerable growth in total stockholders’ equity, which outpaced the growth in revenue. This suggests a potential increase in retained earnings or equity financing without a corresponding proportional increase in sales.

Revenue and Equity Relationship

Revenue consistently increased from 2020 to 2025, although the rate of increase slowed in the final observed year. However, the growth in stockholders’ equity was considerably more pronounced, particularly in 2024 and 2025, leading to the observed decline in equity turnover. The disproportionate increase in equity relative to revenue is the key factor influencing the ratio’s trajectory.

The observed trend warrants further investigation to understand the underlying reasons for the rapid increase in equity and its impact on overall financial performance.