ServiceNow Inc. (NYSE:NOW)

The period under review demonstrates significant fluctuations in financial performance metrics. Return on Assets (ROA) exhibited a substantial increase between 2022 and 2023, followed by declines in subsequent years. Financial Leverage consistently decreased throughout the period, while Return on Equity (ROE) mirrored the trend observed in ROA, with a peak in 2023 and subsequent declines.

Return on Assets (ROA)

ROA began at 2.13% in 2021 and increased to 2.44% in 2022. A dramatic rise was then observed in 2023, reaching 9.96%. However, ROA decreased to 6.99% in 2024 and further to 6.71% in 2025. This suggests an initial improvement in asset utilization, followed by a diminishing ability to generate earnings from assets.

Financial Leverage

Financial Leverage showed a consistent downward trend, starting at 2.92 in 2021. It decreased to 2.64 in 2022, 2.28 in 2023, 2.12 in 2024, and finally to 2.01 in 2025. This indicates a decreasing reliance on debt financing over the observed period.

Return on Equity (ROE)

ROE followed a similar pattern to ROA. It started at 6.22% in 2021 and rose to 6.46% in 2022. A significant increase occurred in 2023, reaching 22.69%. Subsequently, ROE declined to 14.83% in 2024 and 13.48% in 2025. The correlation between ROE and ROA suggests that changes in asset profitability were a primary driver of changes in shareholder returns.

The combined effect of decreasing financial leverage and fluctuating ROA resulted in a peak in ROE in 2023. The subsequent decline in ROA, despite continued decreases in leverage, led to a reduction in ROE in the later years of the period. The decreasing leverage suggests a more conservative capital structure, but the declining ROA indicates potential challenges in maintaining profitability on the asset base.

The period under review demonstrates significant fluctuations in the components of Return on Equity (ROE). A notable increase in Net Profit Margin is observed, followed by a subsequent decline, while Asset Turnover and Financial Leverage both exhibit downward trends. These movements collectively influence the overall ROE performance.

Net Profit Margin

The Net Profit Margin increased from 3.90% in 2021 to 4.49% in 2022. A substantial surge is then evident, reaching 19.30% in 2023. However, this is followed by a decrease to 12.97% in 2024 and a further slight decline to 13.16% in 2025. This suggests a period of rapidly improving profitability, followed by a stabilization at a still-elevated, but lower, level.

Asset Turnover

Asset Turnover experienced a minor decrease from 0.55 in 2021 to 0.54 in 2022. It continued to decline, reaching 0.52 in 2023, before a slight recovery to 0.54 in 2024. A further decrease to 0.51 is observed in 2025. This indicates a gradual reduction in the efficiency with which assets are used to generate sales.

Financial Leverage

Financial Leverage consistently decreased throughout the period. Starting at 2.92 in 2021, it fell to 2.64 in 2022, 2.28 in 2023, 2.12 in 2024, and finally to 2.01 in 2025. This represents a decreasing reliance on debt financing.

Return on Equity (ROE)

ROE mirrored the trends in its components. It increased modestly from 6.22% in 2021 to 6.46% in 2022. A significant increase to 22.69% occurred in 2023, coinciding with the peak in Net Profit Margin. Subsequently, ROE decreased to 14.83% in 2024 and 13.48% in 2025, aligning with the decline in Net Profit Margin and the continued reduction in Asset Turnover and Financial Leverage. The substantial ROE increase in 2023 was primarily driven by the improvement in Net Profit Margin, despite the offsetting effects of declining Asset Turnover and Financial Leverage.

The interplay between these ratios suggests a shift in the company’s financial strategy. While profitability initially drove significant gains in ROE, subsequent declines in profit margin efficiency and asset utilization, coupled with reduced financial leverage, moderated overall returns. The decreasing financial leverage may indicate a more conservative approach to capital structure.

The five-component DuPont analysis reveals significant shifts in performance over the observed period. Return on Equity (ROE) experienced substantial volatility, initially increasing markedly before declining. This fluctuation is attributable to changes in the underlying components of the analysis, particularly profitability and leverage. A detailed examination of each component follows.

Tax Burden

The tax burden demonstrates considerable fluctuation. It decreased from 0.92 in 2021 to 0.81 in 2022, then increased substantially to 1.72 in 2023, before decreasing again to 0.82 in 2024 and 0.77 in 2025. This variability suggests changes in the company’s effective tax rate or the utilization of tax benefits.

Interest Burden

The interest burden remained relatively stable throughout the period, consistently above 0.90 and reaching 0.99 in both 2024 and 2025. This indicates a consistent ability to cover interest expenses with earnings before interest and taxes.

EBIT Margin

The EBIT margin exhibited a strong upward trend. Starting at 4.70% in 2021, it increased to 5.88% in 2022, then experienced a significant jump to 11.50% in 2023, and continued to rise to 16.03% in 2024 and 17.20% in 2025. This substantial improvement in profitability is a key driver of the initial increase in ROE.

Asset Turnover

Asset turnover showed a slight downward trend overall, decreasing from 0.55 in 2021 to 0.51 in 2025, with minor fluctuations in between. This suggests a gradual decrease in the efficiency with which assets are used to generate sales.

Financial Leverage

Financial leverage decreased consistently throughout the period, moving from 2.92 in 2021 to 2.01 in 2025. This indicates a reduction in the company’s reliance on debt financing. While initially contributing to ROE increases, the continued decline in leverage likely contributed to the subsequent ROE decrease.

The substantial increase in ROE observed between 2021 and 2023 was primarily driven by the significant improvement in the EBIT margin. However, the subsequent decline in ROE from 2023 to 2025, despite continued profitability gains, suggests that the decreasing financial leverage and slight decline in asset turnover offset the positive impact of the higher EBIT margin. The fluctuating tax burden also contributed to the overall volatility in ROE.

The financial performance, as indicated by the presented metrics, demonstrates significant fluctuations over the five-year period. Return on Assets (ROA) experienced substantial growth initially, followed by a decline, while both Net Profit Margin and Asset Turnover exhibited more moderate changes. A detailed examination of each component follows.

Net Profit Margin

The Net Profit Margin increased from 3.90% in 2021 to 4.49% in 2022, indicating improved profitability. A dramatic increase was then observed in 2023, reaching 19.30%, suggesting a substantial improvement in cost control or pricing strategy. However, the margin decreased to 12.97% in 2024 and remained relatively stable at 13.16% in 2025. This suggests that the exceptional profitability achieved in 2023 was not sustained, though profitability remained considerably higher than in the 2021-2022 period.

Asset Turnover

Asset Turnover remained relatively consistent between 2021 and 2023, fluctuating between 0.52 and 0.55. A slight increase to 0.54 was noted in 2024, followed by a decrease to 0.51 in 2025. This indicates a generally stable efficiency in utilizing assets to generate revenue, with a minor decline in asset utilization in the most recent year.

Return on Assets (ROA)

ROA mirrored the trend in Net Profit Margin. It increased from 2.13% in 2021 to 2.44% in 2022. The most significant change occurred in 2023, with ROA rising sharply to 9.96%. This increase was directly attributable to the substantial improvement in Net Profit Margin. Subsequently, ROA decreased to 6.99% in 2024 and 6.71% in 2025, aligning with the decline in Net Profit Margin. Despite the decrease from the 2023 peak, ROA remained considerably higher in 2024 and 2025 than in the earlier years of the period.

The analysis reveals that changes in ROA are primarily driven by fluctuations in Net Profit Margin. While Asset Turnover remained relatively stable, the significant shifts in profitability had a pronounced effect on overall asset performance. The substantial increase in ROA in 2023, followed by a subsequent decline, warrants further investigation to understand the underlying factors contributing to these changes.

The period demonstrates significant fluctuations in the components contributing to Return on Assets (ROA). A notable increase in profitability, coupled with shifts in asset utilization and tax management, drives the observed changes in overall performance.

EBIT Margin

The EBIT Margin exhibits a consistent upward trend, increasing from 4.70% in 2021 to 17.20% in 2025. This represents a substantial improvement in operational efficiency and pricing power over the period. The most significant increase occurred between 2022 and 2023, followed by continued, albeit smaller, gains in subsequent years.

Asset Turnover

Asset Turnover shows a relatively stable, but slightly declining, pattern. Beginning at 0.55 in 2021, it decreases to 0.51 in 2025. This suggests a gradual reduction in the efficiency with which assets are being used to generate sales. While the changes are modest, the consistent downward trend warrants monitoring.

Tax Burden

The Tax Burden experiences considerable volatility. It decreases from 0.92 in 2021 to 0.81 in 2022, then rises sharply to 1.72 in 2023 before declining to 0.77 in 2025. This indicates significant changes in the effective tax rate, potentially due to alterations in tax laws, jurisdictional shifts in earnings, or the utilization of tax credits. The large increase in 2023 significantly impacted ROA.

Interest Burden

The Interest Burden remains remarkably stable throughout the period, fluctuating minimally around 0.90 to 0.99. This suggests consistent financial leverage and a relatively unchanged cost of debt. The stability in this component indicates that changes in ROA are not being driven by financing costs.

Return on Assets (ROA)

ROA demonstrates a dramatic increase from 2.13% in 2021 to 9.96% in 2023, largely attributable to the substantial improvement in EBIT Margin and a temporary spike in Tax Burden. However, ROA then declines to 6.99% in 2024 and further to 6.71% in 2025. This decrease is likely due to the combined effect of a moderating EBIT Margin, a declining Asset Turnover, and a lower Tax Burden in the later years. Despite the decline from the 2023 peak, ROA remains significantly higher than the 2021 and 2022 levels.

In summary, the period is characterized by strong profitability gains offset by a slight decrease in asset efficiency and significant fluctuations in tax management. These factors collectively influence the overall Return on Assets, demonstrating a peak in 2023 followed by a moderate decline in subsequent years.

The period demonstrates significant fluctuations in profitability metrics, particularly concerning net profit margin. A disaggregation of factors influencing this margin reveals notable shifts in tax and interest burdens, alongside substantial changes in operating profitability as measured by the EBIT margin.

Net Profit Margin

Net profit margin increased considerably from 3.90% in 2021 to 4.49% in 2022, then experienced a dramatic surge to 19.30% in 2023. This was followed by a decline to 12.97% in 2024 and a slight increase to 13.16% in 2025. The volatility suggests sensitivity to underlying factors impacting profitability.

EBIT Margin

The EBIT margin exhibited a consistent upward trend, rising from 4.70% in 2021 to 17.20% in 2025. The most substantial increase occurred between 2022 (5.88%) and 2023 (11.50%), and then again between 2023 and 2024 (16.03%). This indicates improving operational efficiency and profitability before considering interest and taxes.

Tax Burden

The tax burden fluctuated considerably. It decreased from 0.92 in 2021 to 0.81 in 2022, then increased sharply to 1.72 in 2023. Subsequently, it decreased to 0.82 in 2024 and further to 0.77 in 2025. This variability likely contributed to the fluctuations observed in the net profit margin, particularly the decline from 2023 to 2024.

Interest Burden

The interest burden remained relatively stable throughout the period, consistently near 0.90. It increased slightly from 0.90 in 2021 to 0.99 in 2025. This suggests a consistent level of interest expense relative to earnings before interest and taxes, with minimal impact on the observed net profit margin changes.

The significant increase in net profit margin in 2023 appears to be driven by a combination of a substantial improvement in the EBIT margin and a temporary reduction in the tax burden. However, the subsequent decline in net profit margin in 2024 is largely attributable to a substantial increase in the tax burden, despite continued growth in the EBIT margin. The relatively constant interest burden did not appear to be a major driver of these changes.