Western Digital Corp. (NASDAQ:WDC)

The analysis of the quarterly financial ratios over the observed periods reveals several noteworthy trends in profitability and leverage.

Return on Assets (ROA)

The ROA shows a fluctuating pattern with initial missing data in early periods. Beginning from a positive 2.31% in June 2018, it experienced a decline, reaching negative values as early as October 2019 (-2.86%) and further dropping to -5.86% by January 2020. Thereafter, there was a gradual recovery, peaking at 7.66% in December 2021. However, this upward momentum was short-lived, as ROA declined sharply in subsequent quarters, falling back into negative territory, reaching -10.07% by December 2023. This indicates volatility in asset profitability, with a recovery phase ultimately overshadowed by a significant downturn.

Financial Leverage

The financial leverage ratio remained relatively stable throughout the periods, fluctuating mildly between 2.01 and 2.76. Starting at 2.53 in September 2017, it displayed a subtle upward trend until around January 2020 (peak at 2.76), followed by a general decline to around 2.01 by September 2023. Slight upticks were observed in the final periods. This pattern suggests a moderate use of debt relative to equity, with some deleveraging undertaken after early 2020.

Return on Equity (ROE)

The ROE exhibits a trend broadly aligned with the ROA, with initial values missing and first available data showing 5.85% in June 2018. It then declined sharply, reaching a low of -16.11% in January 2020, indicating considerable challenges affecting shareholder returns. Subsequently, a strong rebound occurred, peaking at 16.58% in April 2022, demonstrating a period of enhanced profitability and efficient equity use. Yet, from mid-2022 onwards, ROE deteriorated significantly, falling to -22% by December 2023. The magnitude of the decline in ROE, which is more pronounced than that of ROA, is in part influenced by the changes in leverage but also indicates deteriorating net income relative to equity.

Overall, the data points to a cyclical financial performance with periods of recovery and decline. The significant drops in ROA and ROE in the later quarters suggest operational or market challenges impacting profitability despite a somewhat controlled leverage level. The temporary improvements in ROE and ROA in 2021 and early 2022 indicate that there were intervals of effective asset utilization and equity returns, which were not sustained through the most recent periods.

The analysis of the quarterly financial ratios reveals significant fluctuations in the company's profitability, efficiency, and financial structure over the examined periods.

Net Profit Margin

The net profit margin shows marked volatility with a general downward trend in recent quarters. Initially, values fluctuate modestly around positive territory, peaking at 10.52% in December 2021. However, from late 2021 onwards, there is a pronounced decline, with margins turning negative and reaching as low as -21.34% by December 2023. This indicates increasing challenges in maintaining profitability relative to sales.

Asset Turnover

The asset turnover ratio exhibits a gradual decrease over the period. Early in the dataset, the ratio is around 0.71 but trends downward, falling to 0.46 by December 2023. The decline in asset turnover suggests decreasing efficiency in using assets to generate sales, which could be due to either declining sales or increases in asset base without proportional sales growth.

Financial Leverage

Financial leverage ratios show a moderate decreasing trend from above 2.6 in 2017 and 2018 towards lower levels near 2.0 in recent periods. This reduction may imply an effort to deleverage and reduce reliance on debt financing, thereby potentially lowering financial risk.

Return on Equity (ROE)

Return on equity demonstrates substantial volatility corresponding to the trends in net profit margin. After mid-2018, ROE fluctuated between modest positive and negative returns, peaking at 16.58% in December 2021. However, it declines sharply thereafter, turning negative from late 2022 and reaching approximately -22% by December 2023. This decline reflects deteriorating profitability and potentially increasing equity base or losses affecting shareholder returns.

Overall, the financial ratios suggest that the company experienced a period of improving profitability and efficiency up to late 2021, followed by a pronounced downturn in performance through 2022 and 2023. Declining net profit margins and ROE, together with reduced asset turnover, indicate challenges in operational efficiency and profitability. The slight reduction in financial leverage may reflect strategic adjustments to capital structure in response to these challenges.

Tax Burden

The tax burden ratio exhibits volatility across the periods, with initial values around 0.32 and 0.26, followed by noticeable fluctuations including both positive and negative values. Starting from late 2020 to 2021, the ratio rises significantly, peaking near 0.91 before gradually declining toward the latest periods, where it turns negative again. This suggests varying effective tax rates or impacts from tax-related adjustments during these periods.

Interest Burden

The interest burden ratio shows a downward trend initially but includes abrupt negative values around mid-2019 and early 2020, indicating possible irregular financial expenses or accounting changes. From mid-2020 onward, the ratio steadily improves, rising from a negative low to near 0.87, before a moderate decrease in late 2022 and early 2023. This pattern indicates fluctuating interest expenses relative to earnings before interest and taxes, with some recovery in later periods.

EBIT Margin

The EBIT margin percentage depicts a clear cyclical pattern with a peak of 13.37% in late 2017, followed by a steady decline that turns negative between late 2019 and mid-2020, reaching as low as -4.92%. There is a subsequent recovery phase from mid-2020 through 2021, with margins returning to positive territory and peaking at 13.25% by late 2021. However, margins deteriorate again in 2022 and 2023, falling into negative values, indicating challenges in operational profitability during these latest periods.

Asset Turnover

Asset turnover remains relatively stable in the range of approximately 0.7 in earlier periods, with a gradual decline starting around late 2018. It dips steadily through 2020 and 2021, reaching about 0.5 by late 2023. This downward trend signals decreasing efficiency in using assets to generate sales over the analyzed periods.

Financial Leverage

Financial leverage ratios start at around 2.53 and gradually increase to approximately 2.75 by late 2019. Following this, there is a consistent decline reaching around 2.01 in early 2023, with a slight rise afterward. This pattern indicates a modest reduction in the degree to which the company uses debt financing relative to equity over time, particularly from 2020 onward.

Return on Equity (ROE)

ROE demonstrates significant variability, with intermediate peaks and troughs. It started at 5.85% and decreased to negative values in late 2019 and early 2020, hitting lows near -16%. A recovery occurred in 2021 and early 2022, with ROE rising to values above 16%. Subsequently, ROE declined sharply again throughout 2022 and into 2023, reaching below -20%. These fluctuations reflect the combined effects of profitability, asset management, and leverage on shareholder returns, highlighting periods of both financial stress and recovery.

The financial ratios over the observed periods reveal distinct trends in profitability and operational efficiency, particularly analyzing net profit margin, asset turnover, and return on assets (ROA).

Net Profit Margin

The net profit margin shows considerable volatility throughout the timeframe. Initial data points demonstrate a moderate positive margin near the 3% mark, followed by a decline turning negative by late 2019 and persisting through 2020. Starting in early 2021, there is a notable recovery with the margin rising steadily to peak above 10% by the end of 2021. However, this positive trajectory reverses sharply commencing in early 2022, plunging into increasingly negative territory and reaching a low exceeding -20% by late 2023, indicating a significant deterioration in profitability towards the latter part of the data series.

Asset Turnover

This ratio, reflecting operational efficiency, remains relatively stable in the mid-0.6 range initially, with a slight decline from approximately 0.71 to around 0.46 over the entire period. The decrease is gradual but consistent, suggesting a diminishing efficiency in utilizing assets to generate revenue as time progresses. The highest efficiency is observed around late 2017 to early 2018 periods, with a steady reduction thereafter indicating potential challenges in asset management or revenue generation capacity.

Return on Assets (ROA)

The ROA pattern closely mirrors that of the net profit margin but with generally lower values, starting from a positive range around 2.3%, decreasing into negative values by late 2019. This decline continues into 2020, reflecting lower profitability relative to the asset base. In the early to mid-2021 period, ROA improves significantly, reaching a peak of over 7% near the end of 2021, indicative of improved asset utilization and profitability. After this period, ROA declines once more, turning negative in early 2023 and hitting its lowest values by late 2023, which aligns with decreasing profitability and asset efficiency.

Overall, the data indicate a cyclical pattern of recovery followed by decline in profitability and asset efficiency. While the mid-period (2021) shows a strong phase of financial health with improved margins and asset returns, the subsequent downturn through 2022 and 2023 suggests emerging or ongoing challenges impacting overall company performance.

Tax Burden

The tax burden ratio shows significant volatility over the observed quarters, with some periods reporting values exceeding 0.80, indicating high profitability after tax, while other periods exhibit negative values, notably around early 2021 and mid-2023. This fluctuation suggests variable tax impacts and potential irregularities in pre-tax income or tax expenses during these intervals.

Interest Burden

The interest burden ratio fluctuates considerably, with values ranging from positive ratios around 0.70 to a sharp negative dip near -1.58 in late 2018, reflecting extremes in interest expenses relative to earnings. Post-2019, the ratio stabilizes between approximately 0.60 and 0.90, implying relatively consistent interest cost management after prior volatility.

EBIT Margin (%)

The EBIT margin presents a downward trend from 2017 through late 2019, with margins decreasing from a high of about 13.4% to negative values peaking near -4.9%. Recovery begins mid-2020, with gradual improvement reaching over 13% by late 2021. However, margins decline markedly again in 2022 and 2023, turning negative and reaching lows near -17.5%, indicating periods of operational challenges and diminished profitability.

Asset Turnover

Asset turnover demonstrates a gradual decline over the entire period, starting from around 0.71 and decreasing to approximately 0.46 by late 2023. This steady drop indicates reduced efficiency in utilizing assets to generate revenue, which may signal challenges in sales performance or asset base management.

Return on Assets (ROA) (%)

ROA fluctuates from positive values in 2017 to significant negative depths around late 2018 and into 2019, with lows nearing -5.9%. A recovery phase occurs through 2020 to late 2021, with ROA reaching up to approximately 7.7%, reflecting improved profitability relative to assets. However, a sharp decline resumes in 2022, leading to negative returns near -10% by mid-2023, highlighting resumed operational inefficiencies or losses on assets.

The analyzed financial ratios reveal significant fluctuations in profitability and financial performance over the observed periods. The Tax Burden ratio initially displays positive values starting from September 2018, with notable volatility including both strong increases and decreases, for example peaking at approximately 0.91 and dipping into negative territory in certain quarters. This indicates variable effective tax rates influencing net income relative to earnings before taxes.

The Interest Burden ratio shows considerable variability as well, starting positively but exhibiting a sharp negative value at one point, reflecting periods where interest expenses or related adjustments significantly impacted earnings before taxes. Over later periods, the ratio trends upwards to stabilize around 0.8 to 0.9, suggesting improved interest expense management or reduced debt service burden relative to EBIT.

Examination of the EBIT Margin % shows a gradual decline from double-digit positive margins above 13% in earlier periods to negative margins in late 2019 and into 2020. This downturn aligns with profitability challenges or cost pressures during those quarters. Subsequently, the EBIT margin recovers steadily, approaching previous positive levels up to around 13%, before declining sharply again in the most recent quarters, indicating volatility in operational earnings.

The Net Profit Margin % mirrors the trend observed in EBIT Margin, although the net margin experiences more pronounced negative spikes, especially in late 2019 and 2020, reaching values as low as nearly -22% in recent quarters. This pattern suggests that factors beyond operating income, such as taxes, interest, or extraordinary items, have increasingly pressured the bottom line. Recovery phases are evident but less sustained, culminating in a substantial decline in the latest periods.

Overall, the data indicates periods of instability and financial stress, followed by intervals of recovery, though recent quarters display a renewed downturn in profit margins. The fluctuations in tax and interest burdens contribute to the variability in net profitability, highlighting sensitivity to external financing costs and tax impacts across the periods analyzed.

Tax Burden:

Highly volatile with peaks near 0.91 and occasional negative values, reflecting inconsistent tax impacts on earnings.

Interest Burden:

Marked by significant fluctuations including sharp negative values; later periods show stabilization near 0.8–0.9, indicating improved interest expense control.

EBIT Margin:

Declining from strong double-digit margins to negative territory around 2019-2020, followed by recovery and recent substantial declines.

Net Profit Margin:

Greater volatility and deeper negative margins than EBIT margin, with patterns of recovery and sharp drops, especially in recent quarters.