Last update on 2024-06-06

Cadence Design Systems (CDNS) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Cadence Design Systems (CDNS) analysis for 2023 reveals a strong Piotroski F-Score of 7/9, indicating solid financial health and operational efficiency.

Short Analysis - Piotroski Score: 7

We're running Cadence Design Systems (CDNS) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a tool to gauge a company's financial health based on profitability, liquidity, and leverage across nine different criteria. Cadence Design Systems (CDNS) scored a commendable 7 out of 9. Specific assessments include a positive net income of over $1 billion, robust operating cash flow, and improvements in return on assets, all suggesting effective revenue generation and cost management. However, a stagnant gross margin and slightly reduced current ratio suggest areas for improvement. Overall, CDNS outperformed in key measures of profitability and efficiency, showcasing the company's resilient financial health and growth.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 7, it appears Cadence Design Systems (CDNS) is a strong candidate for investment. The company shows solid profitability and efficient revenue generation. However, slight concerns exist in liquidity metrics and a static gross margin, advising a cautious but optimistic stance. On the whole, CDNS is worthy of consideration for investors looking for financially sound and growing companies.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Cadence Design Systems (CDNS)

Company has a positive net income?

Net income is a fundamental measure of a company's profitability. A positive net income signifies profitability, whereas negative net income indicates a loss.

In 2023, Cadence Design Systems (CDNS) reported a net income of $1,041,144,000, which is firmly positive. This is a significant indicator of financial health and operational efficiency. Historically, the company’s net income has shown resilience and growth, especially notable after 2012. For instance, from 2012's $439,948,000, the net income has experienced sustained growth, reaching over a billion dollars in 2023. This increasing trend demonstrates robust profitability and implies effective cost management and revenue growth strategies. Thus, for this Piotroski criterion, Cadence Design Systems scores 1 point, reinforcing its solid financial condition.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the amount of cash generated by a company's normal business operations. Consistent positive CFO is essential as it reveals effective revenue generation and operational efficiency.

For Cadence Design Systems (CDNS) in 2023, the CFO stands at $1,349,176,000. This is a positive figure, thereby earning 1 point in the Piotroski Analysis. Reviewing long-term data: from 2003 to 2023, CFOs show a consistent upward trajectory—beginning at $171 million in 2003 to the current $1,349 million in 2023. This trend signifies robust and sustained operational profitability. Hence, for this criterion, the trend is undoubtedly good.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) is a measure used to assess a company's efficiency at generating profits from its assets year-over-year.

Cadence Design Systems (CDNS) saw its ROA increase from 0.1783 in 2022 to 0.1927 in 2023. This improvement is considered positive as it indicates increased efficiency in utilizing assets to generate earnings. Over the past 20 years, the company's operating cash flow has seen a general upward trend, reaching around $1.35 billion in 2023. Comparatively, the industry's median ROA has also demonstrated consistency, hovering around the 0.65 mark. It's noteworthy that Cadence consistently trails the industry median, suggesting there may be room for further efficiency improvements. Nevertheless, the year-over-year improvement in ROA adds 1 point to CDNS's Piotroski score.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income: This criterion checks whether a company generates more cash from its core business operations than it earns as profit, indicating efficient cash management.

For the year 2023, Cadence Design Systems (CDNS) reported an Operating Cash Flow (OCF) of $1,349.176 million and a Net Income of $1,041.144 million. Since the OCF is higher than the Net Income, it signifies efficient cash generation from core activities. This result earns Cadence 1 point for this criterion, reflecting a positive trend. The historical trend supports this; over the last 20 years, cash flow from operations has generally shown a healthy increase from $171.001 million in 2003 to $1,349.176 million in 2023, outpacing net income, which also improved from a negative value in 2003 to $1,041.144 million in 2023.

Liquidity of Cadence Design Systems (CDNS)

Leverage is declining?

Leverage is an important metric that measures the amount of debt a company uses to finance its assets. It provides insight into financial risk.

Evaluating Cadence Design Systems' leverage, the ratio increased from 0.0732 in 2023, up from 0.1533 in 2022. This shows a small reduction in the company's reliance on debt for its financial operations. Although this change isn't dramatic, it marks a positive shift. Historically, Cadence's leverage was significantly higher, peaking at 0.3091 in 2009. Observing this trajectory over the last two decades indicates the company has made strategic efforts to stabilize and reduce debt levels, positioning itself in a more secure financial stance.

Current Ratio is growing?

Explain the criterion for Cadence Design Systems (CDNS) and why it is important to consider

The current ratio measures a company's ability to cover its short-term liabilities with its short-term assets. For Cadence Design Systems (CDNS), a current ratio is crucial as it highlights liquidity and financial health. Comparing the ratio of 1.2422 in 2023 to 1.2664 in 2022, we observe a minor decrease. Industry comparison reveals that CDNS's current ratio has consistently been below the industry median, standing at 1.7519 in 2023. The decreasing trend and lagging behind the industry points to potential liquidity issues and poor short-term financial wellbeing.

Number of shares not diluted?

Change in Shares Outstanding refers to the number of shares that are issued by the company and currently held by investors. It is a crucial indicator to assess company's share dilution or buyback activities.

Based on the data, Cadence Design Systems (CDNS) shows a decrease in Outstanding Shares from 271,198,000 in 2022 to 269,381,000 in 2023. This indicates a potential buyback of shares or fewer shares being issued, which can be favorable for the investors as it might enhance the value of outstanding shares. Therefore, 1 point is added for this criterion. Historically, CDNS has fluctuated in its number of outstanding shares, with significant decreases in 2008 and 2015. The overall trend from 2003 to 2023 shows periods of both increases and decreases, but the recent trend from 2019 to 2023 shows a moderately stable or decreasing pattern, reinforcing a positive outlook for shareholders.

Operating of Cadence Design Systems (CDNS)

Cross Margin is growing?

Gross Margin Comparison for Cadence Design Systems (CDNS) - Analyzing YoY change in margins to assess performance stability.

In 2023, Cadence Design Systems reported a Gross Margin of 0.8936, a slight decrease from 0.8957 in 2022. This decline, although marginal, triggers a score of 0 as per the Piotroski criterion as opposed to an increment in margin. Over the past 20 years, the company's gross margin hovered above the industry median signifying strong cost management and sustained profitability margins attributable to operational efficiencies.

Asset Turnover Ratio is growing?

Asset Turnover Ratio is a measure of a company's efficiency in using its assets to generate sales or revenue. Higher ratios indicate better performance.

The Asset Turnover for Cadence Design Systems (CDNS) has increased from 0.748 in 2022 to 0.7569 in 2023. This is a positive trend, signifying an improvement in the company's ability to use its assets to generate revenue. Over the last 20 years, CDNS's Asset Turnover Ratio has seen fluctuations but mainly an upward trend post-2008 financial crisis, peaking in 2018 at 0.8749. The steady increase since 2020 adds confidence for investors in management's operational efficiency. Based on the Piotroski Score for this criterion, CDNS secures 1 point.