Fortinet Inc. (NASDAQ:FTNT)

The analysis of the annual financial ratios for Fortinet Inc. over the period from 2018 to 2022 reveals several notable trends in profitability and financial leverage.

Return on Assets (ROA)

The ROA shows a fluctuating but generally positive trend. It decreased from 10.79% in 2018 to 8.4% in 2019, indicating a reduction in asset efficiency during that period. Subsequently, there was a recovery and increase to 12.08% in 2020, followed by a slight decline to 10.25% in 2021. The most recent data point from 2022 shows a significant improvement, with ROA rising to 13.77%, the highest in the five-year span. This indicates enhanced effectiveness in using assets to generate earnings towards the end of the period.

Financial Leverage

Financial leverage experienced a pronounced increase over the years for which data is available. It started at a ratio of 3.05 in 2018 and slightly decreased to 2.94 in 2019. However, from 2019 onwards, there was a sharp escalation, rising to 4.72 in 2020 and reaching a peak of 7.57 in 2021. Data for 2022 is unavailable, but the upward trend until 2021 suggests an increased reliance on debt or financial obligations relative to equity, which could imply higher financial risk or a strategic decision to use leverage to fuel growth or investment.

Return on Equity (ROE)

The ROE exhibits strong volatility but indicates a generally upward trend until 2021. From 32.88% in 2018, ROE decreased markedly to 24.7% in 2019, potentially reflecting challenges in profitability or equity management during that period. However, there is a sharp increase in subsequent years, with ROE doubling to 57.07% in 2020 and further increasing dramatically to 77.63% in 2021. The 2022 data is missing, but the available figures suggest that returns generated on shareholder equity improved considerably, potentially influenced by the increasing leverage observed.

In summary, the company demonstrated improving asset efficiency and exceptional growth in equity returns in recent years, albeit supported by increasing financial leverage. The trends suggest a strategic approach that incorporates higher leverage to enhance shareholder returns, which simultaneously increases financial risk. Continued monitoring of these ratios will be essential to assess sustainability and risk exposure.

The financial data reveals several noteworthy trends across the analyzed periods. The net profit margin experienced fluctuations but generally maintained a strong profitability level. Starting at 18.44% in 2018, it declined to 15.14% in 2019, before recovering to approximately 18% in 2020 and 2021. A further increase to 19.41% in 2022 indicates an improving cost management or revenue quality in the most recent year.

Asset turnover displayed some variability, suggesting changing efficiency in the use of assets to generate sales. After a slight decline from 0.59 in 2018 to 0.55 in 2019, it improved significantly in 2020 to 0.64 but then fell again to 0.56 in 2021. The most recent figure of 0.71 in 2022 reflects enhanced asset utilization, potentially indicating operational improvements or more efficient asset management.

Financial leverage showed a marked increase over the available periods, indicative of an increasingly leveraged capital structure. The ratio decreased marginally from 3.05 in 2018 to 2.94 in 2019 but then rose sharply to 4.72 in 2020 and further to 7.57 in 2021. The absence of data for 2022 precludes analysis for that year but the trend up to 2021 suggests rising reliance on debt or other liabilities to finance the company's assets.

Return on equity (ROE) exhibited substantial growth, reflecting improved profitability relative to shareholders' equity. It declined initially from 32.88% in 2018 to 24.7% in 2019, then increased dramatically to 57.07% in 2020 and surged further to 77.63% in 2021. Missing data for 2022 prevents assessment for that year, but the strong upward trajectory through 2021 indicates significant value creation for equity holders, likely driven by both improved operating results and increased financial leverage.

Net Profit Margin

Fluctuated but overall increased from 18.44% in 2018 to 19.41% in 2022, denoting stable to improving profitability.

Asset Turnover

Variable trend with a notable improvement in 2022 to 0.71, suggesting enhanced asset efficiency.

Financial Leverage

Marked increase from 2.94 in 2019 to 7.57 in 2021, indicating greater use of debt financing.

Return on Equity (ROE)

Strong upward trend to 77.63% in 2021, reflecting high profitability and amplified by increased financial leverage.

The financial data reveals several notable trends and shifts over the analyzed periods.

Tax Burden

The tax burden ratio shows a declining trend from 1.32 in 2018 to 0.86 in 2019, followed by relatively stable values around 0.90 to 0.98 through 2022. This suggests an initial significant reduction in tax expenses relative to pre-tax earnings, which then stabilized at a lower level.

Interest Burden

The interest burden ratio remains steady at 1.00 for 2018 to 2020, indicating no interest expenses relative to operating income during this period, with a slight decrease to 0.98 in 2021 and 2022, implying a small impact of interest expenses in the later years.

EBIT Margin

The EBIT margin exhibits a generally positive trajectory, growing from 13.93% in 2018 to a peak of 20.88% in 2020. A slight decrease occurred in 2021 to 19.02%, followed by a recovery to 20.51% in 2022. This trend indicates improving operational profitability with minor volatility.

Asset Turnover

Asset turnover ratio fluctuates moderately, declining from 0.59 in 2018 to 0.55 in 2019, rebounding to 0.64 in 2020, then dipping again to 0.56 in 2021, and reaching a high of 0.71 in 2022. These changes reflect variable efficiency in utilizing assets to generate sales, with notable improvement in the latest period.

Financial Leverage

Financial leverage increased markedly from 3.05 in 2018 to 7.57 in 2021, indicating a growing reliance on debt or other liabilities to finance assets. The absence of data for 2022 precludes comment on the most recent trend, but the sharp rise suggests increased risk exposure over the earlier years.

Return on Equity (ROE)

ROE demonstrates significant volatility, decreasing from 32.88% in 2018 to 24.7% in 2019, followed by a sharp rise to 57.07% in 2020 and peaking at 77.63% in 2021. Data is missing for 2022. The steep increases in 2020 and 2021 may be influenced by rising financial leverage and improved profitability, reflecting strong returns to shareholders in those years.

Overall, the data outlines an organization improving operational margins and asset utilization in later years, with increasing financial leverage and fluctuating returns on equity. The firm appears to have managed tax and interest burdens effectively, contributing to enhanced profitability metrics over time.

Net Profit Margin

The net profit margin exhibited variability over the five-year period. Starting at 18.44% in 2018, it declined to 15.14% in 2019, indicating a reduction in profitability relative to sales. However, it recovered considerably in the following years, reaching 18.83% in 2020 and remaining relatively stable at 18.16% in 2021. The margin further increased to 19.41% in 2022, marking the highest value within the period analyzed. This trend suggests improving efficiency in controlling costs or increasing revenue relative to expenses, with a noticeable dip only in 2019.

Asset Turnover

The asset turnover ratio, which measures the efficiency in using assets to generate sales, showed fluctuations throughout the period. It started at 0.59 in 2018 and decreased slightly to 0.55 in 2019, then increased to 0.64 in 2020. The ratio dropped again to 0.56 in 2021 but rose to the highest point of 0.71 in 2022. These movements suggest periods of varying effectiveness in asset utilization, with the most efficient use observed in the final year examined.

Return on Assets (ROA)

The return on assets followed a pattern that closely mirrors the net profit margin and asset turnover trends. It decreased from 10.79% in 2018 to 8.4% in 2019, reflecting lower overall profitability and asset efficiency during that year. Subsequently, the ROA increased significantly to 12.08% in 2020, then receded to 10.25% in 2021, before reaching its peak of 13.77% in 2022. This pattern indicates an improved ability to generate earnings from assets, with the strongest performance in the most recent year.

Overall Analysis

The three key financial ratios analyzed reveal a common theme of a dip in performance in 2019, followed by a recovery and improvement through 2020 to 2022. The net profit margin and ROA show enhanced profitability and efficient asset use, while the rising asset turnover ratio in 2022 signals better utilization of assets to generate sales. Such trends point towards strengthened operational efficiency and profitability in the latest years compared to the initial period examined.

Tax Burden

The tax burden ratio shows a decreasing trend from 1.32 in 2018 to 0.86 in 2019, followed by a gradual increase approaching 0.97 in 2022. This indicates an initial reduction in tax-related expenses relative to earnings, with stabilization close to one in the later years.

Interest Burden

The interest burden remains stable at 1 from 2018 through 2020, then slightly decreases to 0.98 in 2021 and remains steady in 2022. This reflects minor increases in interest expenses affecting earnings before interest and taxes over the latter years.

EBIT Margin

The EBIT margin shows a generally positive trend, rising from 13.93% in 2018 to a peak of 20.88% in 2020. Although there was a slight dip to 19.02% in 2021, the margin recovered to 20.51% in 2022, indicating improved operational efficiency and profitability over the period.

Asset Turnover

Asset turnover fluctuates over the years, starting at 0.59 in 2018 and decreasing to 0.55 in 2019. It then increases to 0.64 in 2020, dips again to 0.56 in 2021, and rises to the highest level of 0.71 in 2022. These variations suggest changes in how effectively assets are used to generate revenue, culminating in higher efficiency in the final year reported.

Return on Assets (ROA)

ROA exhibits some volatility, declining from 10.79% in 2018 to 8.4% in 2019, followed by a significant improvement peaking at 12.08% in 2020. Although it decreases to 10.25% in 2021, ROA subsequently increases sharply to 13.77% in 2022, reflecting an overall enhancement in profitability relative to asset base over the analyzed period.

Tax Burden

The tax burden ratio exhibited a marked decline from 1.32 in 2018 to 0.86 in 2019, followed by a slight increase to 0.90 in 2020. In the subsequent years, the ratio stabilized around 0.97 to 0.98, indicating a relatively steady tax impact on profits after the initial drop.

Interest Burden

The interest burden ratio remained constant at 1.00 during 2018 and 2019, reflecting no interest expenses affecting earnings before taxes during these periods. However, in 2021 and 2022, the ratio experienced a minor decrease to 0.98, suggesting a small but consistent interest expense impact in these years.

EBIT Margin (%)

The EBIT margin showed a general upward trend from 13.93% in 2018 to a peak of 20.88% in 2020. Although it slightly decreased to 19.02% in 2021, it rebounded to 20.51% in 2022. This pattern indicates improving operational efficiency and profitability over the period, with a minor dip in the middle.

Net Profit Margin (%)

Net profit margin experienced fluctuations, starting at 18.44% in 2018 and dropping to 15.14% in 2019. It then recovered to 18.83% in 2020 and maintained relatively consistent levels around 18.16% to 19.41% in 2021 and 2022, respectively. The data suggests a volatility in profitability in the earlier years with stabilization and slight growth in the later periods.