Advanced Micro Devices Inc. (NASDAQ:AMD)

The analysis reveals a dynamic relationship between Return on Assets (ROA), Financial Leverage, and Return on Equity (ROE) over the observed period. Initially, ROE demonstrated a declining trend from March 2022 to December 2022, followed by a period of recovery and subsequent fluctuations. A closer examination of the contributing factors, ROA and Financial Leverage, provides further insight into these movements.

Return on Assets (ROA)

ROA experienced a consistent decline from 5.07% in March 2022 to a low of 1.95% in December 2022. This indicates a decreasing ability to generate profit from its asset base. A subsequent recovery began in April 2023, with ROA reaching 3.11% by March 2025. The most recent observation in June 2025 shows a further increase to 3.79%, suggesting improving asset utilization and profitability. However, a brief dip to -0.04% in July 2023 indicates a period of underperformance.

Financial Leverage

Financial Leverage remained relatively stable throughout the period, fluctuating within a narrow range of 1.21 to 1.26. A slight upward trend was observed from March 2022 to September 2022, followed by a minor decrease and stabilization around 1.22-1.23. The consistency in this ratio suggests that the company’s capital structure and debt financing strategy remained largely unchanged. A slight increase to 1.26 in September 2025 is noted.

Return on Equity (ROE)

ROE mirrored the trend observed in ROA, declining from 6.13% in March 2022 to 2.41% in December 2022. The subsequent recovery in ROA, coupled with stable Financial Leverage, contributed to an increase in ROE, reaching 6.88% by December 2025. The negative ROA in July 2023 resulted in a corresponding negative ROE of -0.05%. The overall trend indicates a strengthening of returns to equity holders as asset utilization improved. The latest value in June 2025 is 4.75%, indicating a positive, but not peak, return for equity holders.

The correlation between ROA and ROE is evident, with changes in ROA directly impacting ROE given the relatively constant Financial Leverage. The period from July 2023 to December 2025 demonstrates a clear positive correlation between ROA and ROE, as both metrics improved. The stability of Financial Leverage suggests that changes in ROE are primarily driven by operational efficiency, as reflected in ROA.

The analysis of the three-component DuPont disaggregation reveals a complex trajectory in the company’s Return on Equity (ROE) over the observed period. Initially, ROE experienced a decline from March 2022 to December 2022, followed by a period of recovery and subsequent fluctuations. The interplay between Net Profit Margin, Asset Turnover, and Financial Leverage explains these shifts.

Net Profit Margin

A significant downward trend in Net Profit Margin is evident from March 2022 (17.98%) to December 2022 (5.59%). This decline continued into early 2023, reaching a low of -0.11% in July 2023. However, the margin began to recover in the latter half of 2023 and continued to improve through the forecast period, reaching 12.51% by December 2025. This suggests improving profitability and potentially effective cost management or pricing strategies in more recent periods.

Asset Turnover

Asset Turnover exhibited a gradual increase from 0.28 in March 2022 to 0.37 in December 2023. This indicates increasing efficiency in utilizing assets to generate sales. The trend continued, reaching 0.45 by December 2025, suggesting further improvements in asset management. This consistent increase contributes positively to ROE.

Financial Leverage

Financial Leverage remained relatively stable throughout the period, fluctuating within a narrow range of 1.21 to 1.26. A slight increase is observed towards the end of the forecast period, but the overall impact on ROE is moderate due to the stability of this component. The company consistently employed a moderate level of financial leverage.

The decline in ROE observed through December 2022 was primarily driven by the substantial decrease in Net Profit Margin, despite improvements in Asset Turnover and relatively stable Financial Leverage. The subsequent recovery in ROE, beginning in late 2023, is attributable to the rebound in Net Profit Margin, coupled with continued gains in Asset Turnover. The increasing Asset Turnover and stabilizing Financial Leverage provide a foundation for sustained ROE improvement, contingent on the continued positive trend in profitability. The forecast suggests a continued positive trajectory in ROE, driven by improvements in both profitability and asset efficiency.

The interplay between these three components demonstrates a shift in the drivers of ROE. Initially, the company relied on asset utilization and leverage to maintain returns, but more recently, profitability has become the dominant factor in driving ROE growth.

The five-component DuPont analysis reveals a complex trajectory in performance over the observed period. Initially, Return on Equity (ROE) demonstrated a decline from 6.13% to 2.41% before entering a period of recovery and eventual growth. This fluctuation is attributable to shifts in the underlying components of the analysis, particularly the EBIT Margin and Tax Burden.

Tax Burden

The Tax Burden exhibited significant volatility. It remained relatively stable around 0.86-0.99 for the first four periods, then increased dramatically to 2.28 in Apr 2023, followed by an outlier of 41.60 in Sep 2023. Subsequently, it decreased to 1.68, 1.58, 1.34, and 1.22 before stabilizing around 0.80-1.04 in the later periods. This erratic behavior significantly impacted ROE, especially during the periods of high tax burden.

Interest Burden

The Interest Burden generally decreased from 0.99 to 0.63, indicating improved capacity to cover interest expenses. It then fluctuated between 0.05 and 0.97 before stabilizing around 0.96-0.97 in the final periods. The low value in Sep 2023 suggests a period of reduced debt or lower interest rates, but the subsequent return to near 1.0 indicates a reversal of this trend.

EBIT Margin

The EBIT Margin experienced a consistent decline from 21.02% to 5.45% before reaching a low of 1.18% in Apr 2023. A strong recovery followed, with the margin increasing to 12.60% by Dec 2025. This improvement in profitability is a key driver of the overall ROE recovery. The negative value in Jul 2023 indicates a period of operating loss.

Asset Turnover

Asset Turnover showed a gradual increase from 0.28 to 0.45 over the period. This suggests improving efficiency in utilizing assets to generate revenue. The consistent upward trend contributes positively to ROE, although the effect is less pronounced than that of the EBIT Margin.

Financial Leverage

Financial Leverage remained relatively stable, fluctuating between 1.20 and 1.26. This indicates a consistent level of debt financing relative to equity. The slight increase in leverage towards the end of the period may amplify both gains and losses, contributing to the observed ROE volatility.

The initial decline in ROE was primarily driven by the decreasing EBIT Margin, partially offset by stable Asset Turnover and Financial Leverage. The subsequent recovery in ROE is largely attributable to the significant improvement in the EBIT Margin, coupled with a modest increase in Asset Turnover. The volatile Tax Burden introduced considerable noise into the ROE calculation, particularly in Sep 2023, and requires further investigation. Overall, the analysis suggests a turnaround in performance, with a strengthening of core profitability and improved asset utilization.

The financial performance, as indicated by the two-component disaggregation of Return on Assets (ROA), reveals a notable trajectory over the observed period. Initially, a decline in profitability is evident, followed by a period of recovery and subsequent growth. This analysis details the trends in Net Profit Margin and Asset Turnover, and their combined impact on ROA.

Net Profit Margin

The Net Profit Margin demonstrates significant volatility. It begins at 17.98% in March 2022, then decreases steadily to a low of 5.59% by December 2022. A further decline occurs, reaching a negative value of -0.11% in July 2023. However, a consistent upward trend is observed from September 2023 onwards, culminating in 12.51% by December 2025. This suggests improving cost management or pricing strategies in the later periods.

Asset Turnover

Asset Turnover exhibits a more moderate and generally positive trend. Starting at 0.28 in March 2022, it increases to 0.35 by December 2022, remaining relatively stable through December 2023. A consistent increase is then observed, reaching 0.45 by December 2025. This indicates increasing efficiency in utilizing assets to generate sales.

Return on Assets (ROA)

ROA mirrors the combined effect of the Net Profit Margin and Asset Turnover. It declines from 5.07% in March 2022 to 1.95% in December 2022, and briefly dips to -0.04% in July 2023, corresponding with the low point of the Net Profit Margin. From September 2023, ROA begins a sustained upward trend, accelerating as both the Net Profit Margin and Asset Turnover improve. By December 2025, ROA reaches 5.64%, indicating a substantial recovery and improved overall asset utilization and profitability.

The initial decline in ROA is primarily driven by the decreasing Net Profit Margin, despite a relatively stable Asset Turnover. The subsequent recovery in ROA is attributable to the combined positive influence of both improving profitability and increasing asset utilization. The latter half of the period demonstrates a strengthening relationship between sales generation and profitability, resulting in a significant enhancement of ROA.

The financial performance, as disaggregated through a four-component DuPont analysis, reveals a complex trajectory over the observed period. Initially, Return on Assets (ROA) demonstrated a decline from 5.07% in March 2022 to 1.95% by December 2022. Subsequently, ROA experienced a period of recovery, culminating in 5.64% by December 2025. This overall improvement in ROA is attributable to shifts in EBIT Margin, Asset Turnover, Interest Burden, and Tax Burden, which are analyzed in detail below.

EBIT Margin

The EBIT Margin exhibited a significant downward trend throughout 2022, decreasing from 21.02% in March 2022 to a low of 5.45% in December 2022. A subsequent recovery began in early 2023, with the margin reaching 12.60% by December 2025. This substantial increase in profitability is a primary driver of the overall ROA improvement. The period from July 2023 to December 2025 shows consistent growth, indicating strengthening operational efficiency or pricing power.

Asset Turnover

Asset Turnover showed a modest, but consistent, increase over the period. Starting at 0.28 in March 2022, it rose to 0.45 by December 2025. This suggests a gradual improvement in the efficiency with which assets are utilized to generate sales. While not as dramatic as the changes in EBIT Margin, the increasing Asset Turnover contributes positively to the overall ROA.

Interest Burden

The Interest Burden remained relatively stable around 0.99 for the first half of the observed period. A notable decrease to 0.63 occurred in April 2023, followed by a sharp decline to 0.05 in September 2023. It then stabilized around 0.97 for the remainder of the period. This reduction in the Interest Burden positively impacted ROA, particularly in the latter half of the analysis timeframe, indicating improved financial leverage or lower interest expenses.

Tax Burden

The Tax Burden displayed considerable volatility. It began at 0.86 in March 2022 and increased to 1.10 by December 2022. A significant spike to 41.60 was observed in September 2023, followed by a return to more typical levels around 0.80-1.13 in subsequent quarters. The high value in September 2023 likely represents a one-time tax event or adjustment, and its impact on ROA was temporary. The trend towards lower tax burden in the final periods contributes to the overall ROA improvement.

In summary, the observed increase in ROA is primarily driven by the substantial recovery in EBIT Margin, coupled with improvements in Asset Turnover and a reduction in Interest Burden. The Tax Burden exhibited volatility, but its overall impact appears less significant than the other factors. The company demonstrated a clear trend of improving profitability and asset utilization, leading to enhanced returns on its asset base.

The financial performance, as indicated by the disaggregation of net profit margin, exhibits considerable fluctuation over the observed period. A notable trend is the volatility in factors impacting profitability, particularly concerning tax and interest burdens. The EBIT margin demonstrates a general upward trajectory in the latter half of the period, though it experienced significant declines earlier on. The net profit margin mirrors this pattern, showing improvement after initial setbacks.

Tax Burden

The tax burden initially remained relatively stable, fluctuating between 0.86 and 0.90 through the first three periods. A substantial increase to 1.10 was observed in December 2022, followed by a peak of 41.60 in September 2023, before declining significantly to 1.02 by December 2025. This suggests a period of heightened tax obligations followed by a return to more typical levels. The large spike in September 2023 warrants further investigation.

Interest Burden

The interest burden remained consistently high, near 0.99, for the first three periods, decreasing to 0.63 by April 2023. It then experienced a brief increase before stabilizing around 0.83-0.97 for the remainder of the period. This indicates a potential reduction in debt or more favorable financing terms in early 2023, followed by a return to previous levels. The low value of 0.05 in September 2023 is an outlier and requires further scrutiny.

EBIT Margin

The EBIT margin experienced a pronounced decline from 21.02 in March 2022 to 5.45 in December 2022. It reached a low of -1.01 in July 2023 before commencing a consistent upward trend. By December 2025, the EBIT margin had risen to 12.60, indicating a substantial recovery in operational profitability. This recovery coincides with the stabilization of the interest burden and a decrease in the tax burden.

Net Profit Margin

The net profit margin followed a similar pattern to the EBIT margin, declining from 17.98 in March 2022 to 5.59 in December 2022, and reaching a low of -0.11 in July 2023. A consistent upward trend then emerged, culminating in a net profit margin of 12.51 in December 2025. This suggests that improvements in operational efficiency, coupled with favorable changes in tax and interest expenses, drove the overall increase in net profitability. The correlation between the EBIT margin and net profit margin is strong, indicating that operational performance is a primary driver of overall profitability.

In summary, the period began with relatively strong profitability, followed by a period of significant decline. However, a clear recovery is evident in the latter half of the observed timeframe, driven by improvements in the EBIT margin and influenced by fluctuations in the tax and interest burdens. The anomalies observed in September 2023 for both tax and interest burdens should be investigated further to understand their underlying causes.