Advanced Micro Devices Inc. (NASDAQ:AMD)

The period under review demonstrates significant fluctuations in financial performance metrics. Return on Assets (ROA) experienced a substantial decline from 2021 to 2022, followed by a period of relative stability and a subsequent increase towards the end of the observed timeframe. Financial Leverage remained comparatively stable throughout the period, exhibiting only minor variations. Consequently, Return on Equity (ROE) mirrored the trend in ROA, with a marked decrease from 2021 to 2022 and a recovery in later years.

Return on Assets (ROA)

ROA decreased dramatically from 25.46% in 2021 to 1.95% in 2022. This represents a significant loss in profitability relative to assets. A slight decline was then observed from 1.95% in 2022 to 1.26% in 2023. ROA then showed modest improvement, increasing to 2.37% in 2024 and further to 5.64% in 2025. This suggests a potential stabilization and eventual recovery in asset utilization efficiency.

Financial Leverage

Financial Leverage exhibited a decreasing trend from 1.66 in 2021 to 1.23 in 2022. It then remained relatively consistent, fluctuating between 1.20 and 1.22 from 2022 through 2025. This indicates a stable capital structure and a consistent reliance on debt financing relative to equity.

Return on Equity (ROE)

ROE followed a similar pattern to ROA, declining sharply from 42.18% in 2021 to 2.41% in 2022. A further decrease to 1.53% was noted in 2023. ROE then began to recover, reaching 2.85% in 2024 and 6.88% in 2025. The correlation between ROE and ROA suggests that changes in asset profitability were the primary driver of changes in equity returns, with financial leverage playing a comparatively minor role.

The substantial decline in both ROA and ROE between 2021 and 2022 warrants further investigation to determine the underlying causes. The subsequent recovery in 2024 and 2025, coupled with stable financial leverage, suggests a potential turnaround in operational efficiency and profitability. The consistent financial leverage indicates a deliberate capital structure management approach.

The three-component DuPont analysis reveals significant fluctuations in the company’s Return on Equity (ROE) over the five-year period. These fluctuations are driven by changes in Net Profit Margin, Asset Turnover, and Financial Leverage. A substantial decline in ROE is observed between 2021 and 2023, followed by a recovery in 2024 and 2025, though not to the levels seen in 2021.

Net Profit Margin

The Net Profit Margin experienced a dramatic decrease from 19.24% in 2021 to 5.59% in 2022, and continued to decline to 3.77% in 2023. A modest recovery to 6.36% occurred in 2024, with a more substantial increase to 12.51% in 2025. This suggests improving profitability in the latter years of the period, but remains below the 2021 peak.

Asset Turnover

Asset Turnover exhibited a sharp decrease from 1.32 in 2021 to 0.35 in 2022. It remained relatively stable at 0.33 in 2023 before a slight increase to 0.37 in 2024 and further improvement to 0.45 in 2025. This indicates a decreasing efficiency in utilizing assets to generate sales initially, followed by a gradual improvement in asset utilization.

Financial Leverage

Financial Leverage demonstrated a decreasing trend from 1.66 in 2021 to 1.23 in 2022, and remained relatively consistent at 1.21 in 2023 and 1.20 in 2024. A slight increase to 1.22 is noted in 2025. This suggests a reduction in the company’s reliance on debt financing initially, followed by stabilization and a minor increase in leverage.

The significant drop in ROE from 2021 to 2023 appears to be primarily driven by the combined effect of declining Net Profit Margin and Asset Turnover. While Financial Leverage also decreased, its impact was less pronounced. The subsequent recovery in ROE from 2024 to 2025 is attributable to improvements in both Net Profit Margin and Asset Turnover, partially offset by a slight increase in Financial Leverage. The interplay between these three components highlights the dynamic nature of ROE and the importance of monitoring each factor individually.

The five-component DuPont analysis reveals significant fluctuations in the drivers of Return on Equity (ROE) over the observed period. A substantial decline in ROE is evident from 2021 to 2023, followed by a recovery in 2024 and further improvement in 2025, though not reaching the levels seen in 2021. These changes are attributable to shifts in the underlying components of the analysis.

Tax Burden

The Tax Burden demonstrates considerable volatility. It increased from 0.86 in 2021 to 1.10 in 2022, peaked at 1.68 in 2023, then decreased to 0.81 in 2024, and rose again to 1.02 in 2025. This suggests changes in the effective tax rate or the composition of earnings impacting tax liabilities.

Interest Burden

The Interest Burden remained relatively stable throughout the period, fluctuating between 0.83 and 0.99. A slight increase is observed in the most recent year, 2025, but the overall trend indicates consistent management of interest-bearing liabilities.

EBIT Margin

The EBIT Margin experienced a dramatic decrease from 22.57% in 2021 to 5.45% in 2022, and continued to decline to a low of 2.71% in 2023. A recovery began in 2024, reaching 8.20%, and continued to improve to 12.60% in 2025. This indicates significant changes in operational profitability, potentially due to revenue fluctuations, cost management, or pricing strategies.

Asset Turnover

Asset Turnover exhibited a sharp decline from 1.32 in 2021 to 0.35 in 2022, remaining low at 0.33 in 2023. A modest increase to 0.37 in 2024 and further to 0.45 in 2025 suggests improving efficiency in utilizing assets to generate revenue, but remains significantly below the 2021 level.

Financial Leverage

Financial Leverage decreased from 1.66 in 2021 to 1.23 in 2022, and remained relatively stable between 1.20 and 1.22 for the subsequent years. This indicates a reduction in the use of debt financing relative to equity, followed by a consistent capital structure.

The substantial drop in ROE from 2021 to 2023 was primarily driven by the combined effect of declining EBIT Margin and Asset Turnover. While the Tax Burden increased during this period, the primary contributors to the ROE decrease were operational performance and asset utilization. The subsequent recovery in ROE from 2024 to 2025 is attributable to improvements in both EBIT Margin and Asset Turnover, partially offset by fluctuations in the Tax Burden. The relatively stable Interest Burden and Financial Leverage suggest these factors did not significantly influence the overall ROE trend.

The financial performance, as indicated by the two-component disaggregation of Return on Assets (ROA), reveals significant fluctuations over the five-year period. A substantial decline in both Net Profit Margin and Asset Turnover contributed to a marked decrease in ROA from 2021 to 2023, followed by a recovery in subsequent years. The period from 2023 to 2025 demonstrates improving performance in both components, leading to a considerable increase in ROA.

Net Profit Margin

The Net Profit Margin experienced a dramatic decrease from 19.24% in 2021 to 5.59% in 2022, and further declined to 3.77% in 2023. This indicates a weakening ability to translate sales into profit. However, a recovery is evident in 2024, with the margin increasing to 6.36%, and continuing upward to 12.51% in 2025. This suggests improved cost management or pricing strategies in the later years.

Asset Turnover

Asset Turnover exhibited a sharp decrease from 1.32 in 2021 to 0.35 in 2022. This suggests a significant reduction in the efficiency with which assets are used to generate sales. The ratio remained relatively stable at 0.33 in 2023 before showing modest improvement to 0.37 in 2024 and further increasing to 0.45 in 2025. This indicates a gradual improvement in asset utilization.

Return on Assets (ROA)

Consequently, ROA decreased substantially from 25.46% in 2021 to 1.95% in 2022, and continued to decline to 1.26% in 2023, mirroring the trends in its component ratios. The ROA began to recover in 2024, reaching 2.37%, and experienced a more substantial increase to 5.64% in 2025. This recovery is directly attributable to the improvements observed in both Net Profit Margin and Asset Turnover.

The combined effect of the declining Net Profit Margin and Asset Turnover resulted in a significant reduction in ROA during 2022 and 2023. The subsequent improvements in both profitability and asset utilization demonstrate a positive trend, culminating in a substantial increase in ROA by 2025. The recovery in ROA suggests a strengthening of the company’s overall financial performance.

The four-component disaggregation of Return on Assets (ROA) reveals significant fluctuations over the five-year period. Overall, ROA experienced a substantial decline from 2021 to 2022, followed by a period of recovery, though not to the initial levels. The primary drivers of these changes appear to be shifts in EBIT Margin and Asset Turnover, with Tax Burden and Interest Burden exhibiting more moderate variations.

Return on Assets (ROA)

ROA peaked in 2021 at 25.46% before falling dramatically to 1.95% in 2022. A gradual increase followed, reaching 2.37% in 2024 and further improving to 5.64% in 2025. This suggests a recovery in profitability and/or efficiency, though the 2025 level remains considerably below the 2021 peak.

EBIT Margin

EBIT Margin demonstrated the most pronounced volatility. It decreased sharply from 22.57% in 2021 to 5.45% in 2022, and continued to decline to a low of 2.71% in 2023. A substantial recovery began in 2024, reaching 8.20%, and continued into 2025 with a further increase to 12.60%. This indicates significant changes in operational profitability, heavily influencing ROA.

Asset Turnover

Asset Turnover exhibited a consistent downward trend from 2021 to 2023, decreasing from 1.32 to 0.33. A slight recovery was observed in 2024 (0.37), followed by a further increase to 0.45 in 2025. This suggests a decreasing efficiency in utilizing assets to generate revenue, though the recent increase indicates a potential stabilization or improvement in asset utilization.

Tax Burden

Tax Burden increased from 0.86 in 2021 to 1.10 in 2022, then rose significantly to 1.68 in 2023. It decreased to 0.81 in 2024 and increased slightly to 1.02 in 2025. This indicates fluctuations in the effective tax rate, impacting net income and, consequently, ROA.

Interest Burden

Interest Burden remained relatively stable throughout the period, fluctuating between 0.83 and 0.99. A slight downward trend was observed from 2021 to 2023, followed by a minor increase in 2024 and 2025. This suggests consistent management of financial leverage and interest expenses.

The decline in ROA from 2021 to 2022 was primarily driven by the substantial decrease in EBIT Margin, compounded by the reduction in Asset Turnover. The subsequent recovery in ROA from 2023 to 2025 is attributable to the rebound in EBIT Margin and the modest improvement in Asset Turnover. The Tax Burden appears to have played a role in the fluctuations, while the Interest Burden remained relatively constant.

The period under review demonstrates significant fluctuations in profitability metrics. A notable divergence exists between the EBIT margin and the net profit margin, influenced by changes in tax and interest burdens. Overall, the net profit margin exhibits volatility, with a recovery observed in the most recent year.

Net Profit Margin

The net profit margin began at 19.24% in 2021, decreased to 5.59% in 2022, and further declined to 3.77% in 2023. A recovery is then evident, rising to 6.36% in 2024 and reaching 12.51% in 2025. This suggests a strengthening of overall profitability in the latter part of the period.

EBIT Margin

The EBIT margin experienced a substantial decrease from 22.57% in 2021 to 5.45% in 2022, followed by a further reduction to 2.71% in 2023. Subsequent years show improvement, with the margin increasing to 8.20% in 2024 and 12.60% in 2025. This indicates that core operational profitability is improving, but not at the same rate as the net profit margin recovery.

Tax Burden

The tax burden increased from 0.86 in 2021 to 1.10 in 2022 and peaked at 1.68 in 2023. It then decreased to 0.81 in 2024 and rose again to 1.02 in 2025. This fluctuating tax burden significantly impacts net income, explaining some of the volatility in the net profit margin. A higher tax burden reduces net income relative to EBIT.

Interest Burden

The interest burden remained relatively stable throughout the period, beginning at 0.99 in 2021 and fluctuating between 0.83 and 0.97 in subsequent years. This suggests that interest expenses have a consistent, though moderate, impact on net income. The slight decrease in the interest burden from 2021 to 2023 may have provided a minor offset to declining EBIT during that timeframe.

The disparity between the EBIT margin and net profit margin trends highlights the significant influence of non-operating factors, particularly taxes, on overall profitability. While core operations, as reflected in the EBIT margin, are showing signs of improvement, the net profit margin’s recovery is also heavily dependent on managing the tax burden effectively.