Qualcomm Inc. (NASDAQ:QCOM)

The analysis reveals a dynamic relationship between Return on Assets (ROA), Financial Leverage, and Return on Equity (ROE) over the observed period. Initially, ROE demonstrates a strong upward trajectory, peaking in the first quarter of 2021, before exhibiting a consistent decline through the end of 2023. A slight recovery is then observed in the subsequent periods, though not reaching the earlier highs.

Return on Equity (ROE)

ROE begins at 91.17% in December 2020 and increases substantially, reaching a maximum of 112.56% in June 2021. A clear downward trend follows, with ROE decreasing to 41.68% by March 2023. A modest recovery is then apparent, reaching 42.55% by June 2025, but remains significantly below the peak values. The most substantial declines occur between September 2022 and March 2023, and again between June 2023 and September 2023.

Return on Assets (ROA)

ROA generally trends upward from 17.95% in December 2020, peaking at 27.35% in June 2022. Following this peak, ROA experiences a consistent decline, reaching a low of 10.12% in March 2025. A slight increase is observed in the final period, with ROA reaching 11.05% in December 2025. The decline in ROA appears to be a primary driver of the overall ROE decline, although the magnitude of the ROE decrease is greater, suggesting the influence of the leverage component.

Financial Leverage

Financial Leverage exhibits a consistent, though decelerating, downward trend throughout the period. Starting at 5.08 in December 2020, it decreases to 2.02 in June 2025, before increasing slightly to 2.36 in December 2025. The rate of decline in leverage slows over time. The decreasing leverage partially mitigates the impact of the declining ROA on ROE, but does not fully offset it. The initial high leverage contributes significantly to the high ROE values observed in early 2021. The subsequent reduction in leverage, combined with the declining ROA, explains the substantial decrease in ROE.

The interplay between ROA and Financial Leverage is crucial in understanding the ROE trajectory. While ROA demonstrates a peak and subsequent decline, the decreasing Financial Leverage acts as a moderating factor. The most pronounced decrease in ROE coincides with periods of both declining ROA and declining leverage, indicating a compounding effect. The recent slight recovery in ROE is attributable to a combination of a modest increase in ROA and a slight increase in leverage.

The analysis of the three-component DuPont decomposition reveals significant fluctuations in Return on Equity (ROE) over the observed period. These fluctuations are driven by varying contributions from Net Profit Margin, Asset Turnover, and Financial Leverage. A general downward trend in ROE is apparent, particularly in the latter half of the period, although recent quarters show some stabilization.

Net Profit Margin

The Net Profit Margin demonstrates initial strength, peaking at 28.25% in June 2021. It then experiences a gradual decline, reaching a low of 20.19% in September 2023, before recovering to 26.76% in June 2025. The most recent quarter shows a substantial decrease to 11.96% in March 2025 and further to 12.51% in September 2025, indicating potential pressures on profitability. The overall trend suggests increasing cost pressures or decreasing pricing power.

Asset Turnover

Asset Turnover exhibits a more stable pattern compared to the other ratios. It generally remains above 0.70 throughout the period, peaking at 0.90 in June and September 2022. A slight decline is observed towards the end of the period, falling to 0.85 in September 2025 and remaining at that level in December 2025. This suggests a moderate efficiency in utilizing assets to generate sales, with a minor decrease in recent quarters.

Financial Leverage

Financial Leverage consistently decreases over the analyzed timeframe. Starting at 5.08 in December 2020, it steadily declines to 2.00 in December 2024, and then slightly increases to 2.02 in June 2025 before rising to 2.36 in September 2025 and 2.30 in December 2025. This indicates a reduction in the company’s reliance on debt financing, which could be a strategic decision to reduce financial risk, but also contributes to the overall decline in ROE as the multiplier effect diminishes.

The initial high ROE values were largely supported by a combination of strong profitability and relatively high financial leverage. As leverage decreased and profit margins contracted, ROE experienced a corresponding decline. The recent stabilization in Asset Turnover provides a limited offset to these negative trends. The significant drop in Net Profit Margin in the most recent quarters is a key area of concern and warrants further investigation.

The interplay between these three components highlights the dynamic nature of ROE. While the company initially benefited from high leverage, the strategic shift towards a more conservative capital structure, coupled with declining profitability, has resulted in a substantial reduction in overall returns. Future performance will likely depend on the company’s ability to restore profitability and efficiently manage its assets.

The five-component DuPont analysis reveals a complex pattern in the company’s Return on Equity (ROE) over the observed period. Initially, ROE demonstrated substantial growth, peaking in March 2021, before experiencing a consistent decline through December 2022. A slight recovery occurred in the subsequent quarters, followed by a significant drop in the final periods analyzed. This fluctuation in ROE can be attributed to shifts in its underlying components: tax burden, interest burden, EBIT margin, asset turnover, and financial leverage.

Tax Burden

The tax burden remained relatively stable, fluctuating within a narrow range between 0.87 and 0.91 for the majority of the period. However, a substantial decrease is observed in the final quarters, falling to 0.44 and 0.43, which likely contributed to the recent volatility in ROE. This significant reduction suggests a change in the company’s tax profile or applicable tax rates.

Interest Burden

The interest burden exhibited a gradual increase from 0.93 in December 2020 to 0.97 in June 2022, indicating a potentially increasing cost of debt. It then stabilized and slightly decreased, remaining around 0.95 in the latest periods. This suggests effective management of interest-bearing liabilities or a favorable shift in interest rate conditions.

EBIT Margin

The EBIT margin showed a strong upward trend from 29.87% to 36.30% between December 2020 and June 2022, indicating improved operational efficiency and profitability. However, the margin subsequently declined, reaching 22.42% in March 2023, before a modest recovery. This decline in profitability is a key driver of the overall ROE reduction.

Asset Turnover

Asset turnover increased from 0.71 to 0.90 between December 2020 and June 2022, demonstrating improved efficiency in utilizing assets to generate sales. It then experienced a decrease, falling to 0.70 in March 2023, and remained relatively stable around 0.71-0.88 for the remainder of the period. This suggests a potential slowdown in sales generation relative to asset base.

Financial Leverage

Financial leverage experienced a consistent decline from 5.08 in December 2020 to 2.00 in March 2025, indicating a reduction in the company’s reliance on debt financing. While lower leverage generally reduces financial risk, the substantial decrease, combined with declining profitability and asset turnover, has significantly impacted ROE. A slight increase to 2.36 and 2.30 is observed in the final two periods.

The interplay between these components highlights a shift in the company’s financial performance. The initial ROE growth was driven by improvements in profitability (EBIT margin) and asset utilization (asset turnover), alongside relatively stable leverage and tax rates. However, the subsequent decline in ROE is primarily attributable to decreasing EBIT margins, coupled with a substantial reduction in financial leverage and a recent, dramatic decrease in the tax burden. The decreasing leverage, while potentially reducing risk, has amplified the impact of lower profitability on overall returns. The significant drop in tax burden in the final periods, while seemingly positive, did not offset the negative impacts of the other factors.

The financial performance, as indicated by the two-component disaggregation of Return on Assets (ROA), reveals notable fluctuations over the observed period. Generally, a positive correlation between Net Profit Margin and Asset Turnover contributes to ROA, though shifts in each component influence the overall result. A period of growth in ROA is followed by a period of decline, with recent quarters showing signs of stabilization and then further decline.

Net Profit Margin

The Net Profit Margin demonstrates an initial upward trend from December 2020 to June 2022, increasing from 25.21% to 30.52%. Following this peak, the margin experienced a decline through March 2023, reaching 22.33%. A modest recovery occurred through September 2024, peaking at 26.11%, before a significant drop to 12.51% in September 2025 and further to 11.96% in December 2025. This suggests increasing cost pressures or decreasing pricing power in the more recent periods.

Asset Turnover

Asset Turnover exhibited an increasing trend from December 2020 (0.71) to June 2022 (0.90), indicating improved efficiency in utilizing assets to generate sales. The ratio remained relatively stable between June 2022 and March 2024, fluctuating between 0.68 and 0.90. A subsequent increase is observed through September 2025, reaching 0.88, followed by a slight decrease to 0.85 in December 2025. This suggests a generally consistent ability to generate sales from its asset base, with a recent slight weakening.

Return on Assets (ROA)

ROA mirrored the trends of its components, initially rising from 17.95% in December 2020 to a peak of 27.35% in June 2022. A subsequent decline commenced, reaching 14.17% in September 2023. A period of stabilization and slight improvement occurred through December 2024 (19.94%), but this was followed by a substantial decrease to 11.05% in September 2025 and 10.12% in December 2025. The decline in ROA is attributable to the combined effect of decreasing Net Profit Margin and, to a lesser extent, fluctuations in Asset Turnover. The recent decline in ROA is more pronounced than the decline in either component individually, indicating a compounding effect.

The interplay between Net Profit Margin and Asset Turnover demonstrates that while efficient asset utilization contributed positively to ROA during the earlier period, the recent decline in profitability has significantly impacted overall returns. The substantial decrease in Net Profit Margin in the latter part of the observed period is a key driver of the overall ROA decline, overshadowing the relatively stable Asset Turnover.

The financial performance, as indicated by the four-component DuPont analysis, reveals a generally positive trend in Return on Assets (ROA) from December 2020 through September 2025, followed by a significant decline in the final two periods. This overall performance is driven by fluctuations in EBIT Margin, Asset Turnover, and the burden ratios. A detailed examination of each component provides further insight.

EBIT Margin

The EBIT Margin demonstrates a consistent upward trajectory from 29.87% in December 2020 to a peak of 36.30% in June 2022. Following this peak, the margin experiences a gradual decline, reaching 29.97% in June 2025, before falling sharply to 30.09% in September 2025 and further to 29.52% in December 2025. This suggests increasing cost pressures or decreasing pricing power in the latter periods.

Asset Turnover

Asset Turnover exhibits an increasing trend from 0.71 in December 2020 to 0.90 in June 2022, indicating improved efficiency in utilizing assets to generate sales. The ratio then plateaus around 0.86-0.90 for several quarters before declining to 0.70 in March 2023. It shows some recovery to 0.85 in December 2025, but remains below the peak levels observed earlier in the period. This suggests a potential slowdown in sales generation relative to asset base in the later quarters.

Tax Burden

The Tax Burden generally decreases from 0.91 in December 2020 to a low of 0.87 in December 2021, remaining relatively stable through September 2022. A slight increase is observed through March 2023, reaching 0.91 in June 2023, before a dramatic drop to 0.44 in September 2025 and 0.43 in December 2025. This substantial decrease suggests a significant reduction in the effective tax rate, potentially due to tax benefits or changes in tax legislation.

Interest Burden

The Interest Burden remains consistently high, fluctuating narrowly between 0.93 and 0.97 throughout most of the observed period. A slight decrease is noted in the final two periods, moving from 0.95 in September 2025 to 0.95 in December 2025. This indicates a relatively stable level of interest expense as a percentage of earnings before interest and taxes.

The combined effect of these components results in a rising ROA from 17.95% in December 2020 to 27.35% in June 2022. The subsequent decline in EBIT Margin and Asset Turnover, coupled with the dramatic reduction in Tax Burden, leads to a significant decrease in ROA to 10.12% in December 2025. The substantial drop in the Tax Burden partially offsets the negative impact of declining profitability and asset utilization, but is insufficient to maintain the earlier levels of ROA. The recent performance suggests a need to investigate the factors contributing to the declining EBIT Margin and Asset Turnover to restore profitability and efficiency.

The information reveals fluctuations in profitability components over the observed period. A general trend of increasing profitability is evident through much of the period, followed by a significant decline in the most recent quarters. The analysis focuses on the interplay between tax burden, interest burden, EBIT margin, and net profit margin to understand these shifts.

Tax Burden

The tax burden demonstrates a slight decreasing trend from 0.91 to 0.87 between December 2020 and December 2021. It then remains relatively stable around 0.87 to 0.91 through March 2023. A substantial decrease is observed in September 2025 (0.44) and continues through December 2025 (0.43), indicating a significantly lower proportion of earnings allocated to taxes in the latter part of the observed period. This sharp decline warrants further investigation.

Interest Burden

The interest burden exhibits a gradual increase from 0.93 in December 2020 to 0.97 in June 2022. It then stabilizes around 0.93 to 0.95 for the remainder of the period, suggesting consistent interest expense management. The ratio remains consistently high, indicating a minimal impact of interest expenses on overall profitability.

EBIT Margin

The EBIT margin generally increased from 29.87% in December 2020 to a peak of 36.30% in June 2022, reflecting improved operational efficiency and profitability. A subsequent decline is observed, reaching 29.52% in September 2023 and 29.97% in June 2025. The most recent value, 26.76% in June 2025, represents a considerable decrease from the peak, suggesting potential challenges in maintaining operational profitability.

Net Profit Margin

The net profit margin mirrors the trend of the EBIT margin, increasing from 25.21% in December 2020 to 30.52% in June 2022. It then declines, reaching 20.19% in September 2023. The most significant drop occurs in the final quarters, with the net profit margin falling to 12.51% in September 2025 and 11.96% in December 2025. This substantial decrease suggests a combination of factors, including the declining EBIT margin and the significantly reduced tax burden, though the latter does not fully offset the operational decline. The interplay between the tax burden and EBIT margin is crucial in understanding the net profit margin’s trajectory.

The observed decline in both EBIT and net profit margins in the latter part of the period, coupled with the dramatic reduction in tax burden, suggests a potential shift in the company’s financial performance. While the lower tax burden provides some offset, the underlying operational profitability appears to be weakening. Further investigation into the drivers of the EBIT margin decline is recommended.