Synopsys Inc. (NASDAQ:SNPS)

The profitability metrics demonstrate a generally positive trend from 2020 through 2024, followed by a significant shift in the most recent year, 2025. Gross profit margin exhibited relative stability with a slight increase over the period, before declining in the final year. Operating and net profit margins showed substantial improvement leading up to 2024, but experienced considerable decreases in 2025. Return on equity and return on assets followed a similar pattern of growth until 2024, with marked declines observed in 2025.

Gross Profit Margin

Gross profit margin remained consistently high, fluctuating between 78.44% and 79.68% from 2020 to 2024. A decrease to 76.98% is noted in 2025, suggesting potential increases in the cost of goods sold or changes in pricing strategy.

Operating Profit Margin

Operating profit margin increased from 16.83% in 2020 to 22.87% in 2022, indicating improved operational efficiency. While remaining strong at 22.13% in 2024, it experienced a substantial decline to 12.97% in 2025, potentially due to increased operating expenses or decreased revenue.

Net Profit Margin

Net profit margin demonstrated consistent growth, rising from 18.03% in 2020 to a peak of 36.94% in 2024. This suggests effective cost management and revenue generation. However, a significant decrease to 18.89% in 2025 indicates a substantial reduction in overall profitability.

Return on Equity (ROE)

ROE steadily increased from 13.54% in 2020 to 25.17% in 2024, reflecting improved profitability relative to shareholder equity. The sharp decline to 4.70% in 2025 suggests a significant decrease in returns generated for shareholders.

Return on Assets (ROA)

ROA exhibited a similar trend to ROE, increasing from 8.27% in 2020 to 17.31% in 2024, indicating improved efficiency in utilizing assets to generate profit. The substantial decrease to 2.76% in 2025 suggests a diminished ability to generate earnings from its asset base.

The year 2025 represents a notable inflection point, with all measured profitability ratios experiencing significant declines. Further investigation is warranted to understand the underlying factors contributing to this shift, such as changes in revenue, cost structure, or asset utilization.

The gross profit margin exhibited a generally stable performance over the observed period, with some fluctuations. Initial values demonstrate a slight increase followed by a minor decline, and then a resurgence before a more noticeable decrease in the final year presented.

Gross Profit Margin Trend

From October 31, 2020, to October 31, 2021, the gross profit margin increased from 78.44% to 79.50%, indicating improved profitability in relation to revenue. A slight decrease was then observed in 2022, with the margin settling at 79.07%. The margin remained relatively consistent in 2023, at 79.08%. A further increase to 79.68% was recorded in 2024, suggesting a strengthening of profitability. However, a more substantial decline to 76.98% occurred in 2025, representing the lowest margin observed during the analyzed timeframe.

Relationship to Revenue

The gross margin in US$ thousands consistently increased from 2,890,591 in 2020 to 5,430,629 in 2025, mirroring the overall growth in revenue. Revenue also demonstrated a consistent upward trend, moving from 3,685,281 in 2020 to 7,054,178 in 2025. The decrease in gross profit margin in 2025, despite the continued growth in both gross margin and revenue, suggests that the cost of goods sold increased at a faster rate than revenue during that year.

The consistent growth in both gross margin and revenue for the majority of the period indicates a generally healthy business performance. The decline in gross profit margin in the final year warrants further investigation to determine the underlying causes, such as increased production costs, changes in pricing strategy, or shifts in product mix.

The operating profit margin exhibited a generally positive trend from 2020 to 2022, followed by some fluctuation and a notable decline in the most recent period presented. Operating income consistently increased from 2020 through 2023, while revenue also demonstrated consistent growth throughout the entire period. However, the rate of growth in operating income did not always keep pace with revenue growth, impacting the operating profit margin.

Overall Trend

The operating profit margin increased from 16.83% in 2020 to a peak of 22.87% in 2022. This indicates improving operational efficiency and profitability during this timeframe. The margin then decreased to 21.72% in 2023 and experienced a significant drop to 12.97% in 2025.

Growth Phase (2020-2022)

From 2020 to 2022, both operating income and revenue increased substantially. The operating profit margin’s growth suggests that the company effectively managed its operating expenses while scaling its revenue. The largest year-over-year increase in operating profit margin occurred between 2021 and 2022, rising 5.39 percentage points.

Stabilization and Decline (2022-2025)

While revenue continued to grow from 2022 to 2025, the operating profit margin began to decline. The decrease from 22.87% in 2022 to 12.97% in 2025 is substantial. This suggests that operating expenses may have increased at a faster rate than revenue, or that there were specific factors impacting profitability in the later years. The decline in 2025 is particularly pronounced, indicating a potential shift in the company’s cost structure or operational performance.

Income and Revenue Relationship

The relationship between operating income and revenue reveals that while revenue consistently increased, the growth rate of operating income slowed in 2024 and contracted in 2025. This divergence is a primary driver of the observed decline in the operating profit margin. Revenue increased by 13.18% from 2024 to 2025, while operating income decreased by 32.68% over the same period.

Further investigation would be required to determine the specific factors contributing to the margin decline in 2025, such as changes in cost of goods sold, selling, general, and administrative expenses, or other operational challenges.

The net profit margin exhibited a generally positive trend over the observed period, though with significant fluctuation. Initial values remained relatively stable before a marked increase in later years.

Overall Trend

From 2020 to 2023, the net profit margin demonstrated a consistent upward trajectory. Beginning at 18.03% in 2020 and 18.02% in 2021, it rose to 19.38% in 2022 and further to 21.05% in 2023. This indicates improving profitability during this timeframe.

Significant Increase (2023-2024)

A substantial increase in net profit margin occurred between 2023 and 2024, rising from 21.05% to 36.94%. This represents a significant improvement in the company’s ability to translate revenue into profit. The magnitude of this change warrants further investigation to understand the underlying drivers, such as cost control measures, pricing strategies, or shifts in revenue mix.

Subsequent Decline (2024-2025)

Following the peak in 2024, the net profit margin experienced a considerable decline to 18.89% in 2025. While still comparable to the earlier values in 2020 and 2021, this decrease suggests a potential reversal of the positive trend observed previously. This decline could be attributed to increased operating expenses, decreased revenue, or other factors impacting profitability.

Relationship to Revenue

The net income attributed to Synopsys increased consistently from 2020 to 2024, mirroring the growth in revenue. However, the disproportionate increase in net income in 2024, relative to revenue, is the primary driver of the significant margin expansion. The subsequent decrease in net income in 2025, despite continued revenue growth, explains the margin contraction.

In summary, the net profit margin demonstrates a period of sustained growth followed by a substantial, but potentially temporary, peak and subsequent decline. The fluctuations observed, particularly in the later years, suggest a dynamic profitability landscape requiring ongoing monitoring and analysis.

The Return on Equity (ROE) demonstrates a generally positive trend over the observed period, with a notable fluctuation in the final two years. Net income attributed to Synopsys and Total Synopsys stockholders’ equity both increased consistently from 2020 to 2024, contributing to the rising ROE. However, a significant shift occurs in 2025, with net income decreasing and stockholders’ equity increasing substantially, resulting in a marked decline in ROE.

Overall Trend

From 2020 to 2024, ROE exhibited a consistent upward trajectory, increasing from 13.54% to 25.17%. This indicates improving profitability relative to shareholder investment. The final year, 2025, shows a substantial decrease in ROE to 4.70%, reversing the prior trend.

Net Income Impact

Net income increased steadily from US$664,347 thousand in 2020 to US$2,263,380 thousand in 2024. This growth in earnings was a primary driver of the increasing ROE during this period. The subsequent decline in net income to US$1,332,220 thousand in 2025 significantly impacted ROE, contributing to the overall decrease.

Stockholders’ Equity Impact

Total stockholders’ equity also increased consistently from US$4,907,404 thousand in 2020 to US$8,990,702 thousand in 2024. While this growth typically dilutes ROE, the concurrent growth in net income offset this effect. The substantial increase in stockholders’ equity to US$28,327,602 thousand in 2025, coupled with the decrease in net income, resulted in a considerable reduction in ROE.

Year-over-Year Changes

The largest year-over-year increase in ROE occurred between 2023 and 2024, rising from 20.01% to 25.17%. Conversely, the most significant decrease occurred between 2024 and 2025, with ROE falling from 25.17% to 4.70%. These changes highlight the sensitivity of ROE to fluctuations in both net income and stockholders’ equity.

The substantial changes observed in 2025 warrant further investigation to understand the underlying factors contributing to the decreased net income and significant increase in stockholders’ equity. The prior trend of increasing ROE suggests strong performance, but the 2025 results indicate a potential shift in the company’s financial dynamics.

The Return on Assets (ROA) exhibited a consistent upward trend from 2020 through 2024, followed by a significant decline in 2025. This indicates a changing relationship between net income and total assets over the observed period.

Overall Trend

From 2020 to 2024, ROA increased steadily, suggesting improving efficiency in utilizing assets to generate profit. The ROA rose from 8.27% in 2020 to a peak of 17.31% in 2024. However, this positive trajectory reversed sharply in 2025, with ROA falling to 2.76%.

Growth Phase (2020-2024)

The period between 2020 and 2024 saw consistent growth in both net income and total assets. However, the growth in net income outpaced the growth in total assets, driving the increase in ROA. The most substantial increase in ROA occurred between 2023 and 2024, potentially indicating a significant improvement in operational efficiency or a change in asset allocation.

Decline (2024-2025)

The substantial decrease in ROA in 2025 is primarily attributable to a considerable increase in total assets, coupled with a decrease in net income. While net income decreased from US$2,263,380 thousand to US$1,332,220 thousand, total assets experienced a dramatic increase, rising from US$13,073,561 thousand to US$48,224,461 thousand. This suggests a significant investment in assets that, in the short term, did not translate into a proportional increase in profitability.

Net Income and Asset Relationship

The relationship between net income and total assets shifted considerably in 2025. Prior to this year, the company demonstrated an ability to generate increasing profits relative to its asset base. The 2025 results suggest either a temporary setback in profitability or a strategic decision to invest heavily in assets with longer-term returns, or a combination of both.