ServiceNow Inc. (NYSE:NOW)

The financial performance, as indicated by Return on Assets (ROA), Financial Leverage, and Return on Equity (ROE), exhibits notable fluctuations over the observed period. Initial values demonstrate a relatively stable ROE, driven by a consistent interplay between ROA and Financial Leverage. However, significant shifts emerge beginning in the latter half of 2022, continuing through 2023, and moderating into 2024 and 2025.

Return on Assets (ROA)

ROA begins at 2.03% in March 2022 and experiences moderate variability, peaking at 2.44% by December 2022. A substantial increase is then observed, reaching 9.54% in June 2023, followed by 10.51% in September 2023. ROA then declines to 6.71% by December 2025, though remaining above the initial levels from 2022. This suggests a period of significantly improved asset utilization followed by a moderation in efficiency.

Financial Leverage

Financial Leverage demonstrates a gradual decline from 2.75 in March 2022 to a low of 1.93 in September 2025. The decrease is not linear, with some fluctuations, but the overall trend is downward. This indicates a decreasing reliance on debt financing relative to equity. A slight increase to 2.01 is observed in December 2025, but remains near the lowest point in the observed period.

Return on Equity (ROE)

ROE mirrors the trend in ROA, initially at 5.58% in March 2022. It rises dramatically, peaking at 22.69% in December 2023, largely attributable to the surge in ROA combined with relatively stable leverage. Subsequently, ROE declines to 13.48% by December 2025. While this represents a considerable decrease from the peak, the final ROE value remains substantially higher than the initial values observed in 2022. The pronounced increase and subsequent decrease in ROE highlight the significant impact of asset utilization on overall equity returns.

The period between June 2022 and December 2023 is characterized by a substantial improvement in profitability, as evidenced by the increase in both ROA and ROE. The subsequent decline in ROE from its peak appears to be driven by a combination of moderating ROA and decreasing Financial Leverage. The decreasing leverage suggests a more conservative capital structure, while the decline in ROA indicates a potential reduction in the efficiency of asset utilization. Overall, the observed trends suggest a dynamic period of performance improvement followed by a stabilization and adjustment in financial strategy.

The three-component DuPont analysis reveals significant fluctuations in Return on Equity (ROE) over the observed period. These fluctuations are driven by changes in Net Profit Margin, Asset Turnover, and Financial Leverage. A notable increase in ROE is observed from 2022 to 2023, followed by a moderation in 2024 and 2025.

Net Profit Margin

The Net Profit Margin demonstrates considerable volatility. It begins at 3.56% in March 2022, declines to 2.79% in June 2022, and then experiences a gradual increase, peaking at 19.30% in December 2023. A subsequent decrease is noted in 2024, falling to 11.51% in March, before stabilizing around 12-13% through the end of the forecast period. This suggests improving profitability in 2023, followed by a normalization in subsequent periods.

Asset Turnover

Asset Turnover remains relatively stable throughout the period, fluctuating between 0.52 and 0.62. A slight downward trend is visible from 2022 to 2023, followed by a modest recovery in 2024. The ratio appears to settle around 0.54-0.58 in the later quarters, indicating consistent efficiency in utilizing assets to generate revenue. A dip to 0.51 is observed in December 2025.

Financial Leverage

Financial Leverage generally declines over the analyzed timeframe. Starting at 2.75 in March 2022, it decreases to 2.01 in December 2025, with some quarterly variations. The most significant decrease occurs between 2022 and 2023. This indicates a reduction in the company’s reliance on debt financing, potentially reflecting a more conservative capital structure.

ROE Decomposition

The substantial increase in ROE observed between March 2022 (5.58%) and December 2023 (22.69%) is primarily attributable to the dramatic improvement in Net Profit Margin. While Asset Turnover and Financial Leverage both decreased during this period, the positive impact of the margin expansion significantly outweighed these effects. The subsequent decline in ROE in 2024 and 2025 is largely due to the decrease in Net Profit Margin, despite relatively stable Asset Turnover and Financial Leverage. The interplay between these three components highlights the sensitivity of ROE to changes in profitability.

In summary, the company experienced a period of significant ROE improvement driven by enhanced profitability, followed by a moderation as profit margins normalized. The consistent asset turnover and decreasing financial leverage suggest a stable operational efficiency and a more conservative financial approach.

The financial performance, as indicated by the two-component disaggregation of Return on Assets (ROA), demonstrates significant fluctuations over the observed period. A notable increase in profitability, coupled with relatively stable asset utilization, appears to be the primary driver of performance changes. The analysis focuses on Net Profit Margin and Asset Turnover, and their combined effect on ROA.

Net Profit Margin

The Net Profit Margin exhibits considerable volatility. Beginning at 3.56% in March 2022, it decreased to 2.79% by June 2022 before recovering to around 2.90% - 4.49% through the end of 2022. A substantial surge is then observed, peaking at 17.76% in June 2023 and reaching 19.30% by December 2023. While remaining high, the margin decreased to 11.51% in March 2024, and fluctuated between 11.51% and 13.78% through June 2025. The most recent value, 13.16% in December 2025, suggests a stabilization, though at a level lower than the peak observed in 2023.

Asset Turnover

Asset Turnover demonstrates a more stable pattern compared to the Net Profit Margin. It generally remains within a narrow range of 0.52 to 0.62 throughout the period. A slight downward trend is visible from March 2022 (0.57) to December 2022 (0.54). The ratio remained relatively flat through June 2023 (0.54), then increased slightly to 0.58 in September 2025, before decreasing to 0.51 in December 2025. These fluctuations are less pronounced than those observed in the Net Profit Margin.

Return on Assets (ROA)

The ROA mirrors the trends in Net Profit Margin, exhibiting a significant increase beginning in late 2022. From 2.03% in March 2022, ROA rose to 2.94% by March 2023, and then experienced a dramatic increase to 9.54% in June 2023, peaking at 10.51% in September 2023. The ROA then decreased to 6.71% in December 2025, following the decline in Net Profit Margin. The relatively stable Asset Turnover suggests that changes in ROA are primarily driven by changes in profitability.

Relationship between Components

The substantial increase in ROA during 2023 is directly attributable to the significant improvement in Net Profit Margin. While Asset Turnover remained relatively constant, the higher profit generated per dollar of assets resulted in a proportionally larger ROA. The subsequent decline in ROA in late 2024 and early 2025 correlates with the decrease in Net Profit Margin, reinforcing the conclusion that profitability is the dominant factor influencing overall asset efficiency.

In summary, the observed performance is highly sensitive to changes in profitability. Maintaining or improving the Net Profit Margin will be crucial for sustaining a strong ROA, given the relatively stable asset utilization.