CDNS, Cadence Design Systems, Inc.
Cadence is a global technology leader that develops computational, AI-driven software, accelerated hardware, and silicon intellectual property products and solutions.
Read top to bottom, the owner's questions in the order an owner asks them: what the business is, whether the record holds, whether it survives and is any good, and what you would be paying. New to the questions? Start with the Method.
The business in brief
read the 10-K →What this business is and what moves its needle, drawn from its own SEC filings. The lens to bring to the numbers below, not the answer.
- What it is
- Revenue is Product and maintenance (91%) and Services (9%).
- What moves the needle
- Retention and the cost of growth. What decides it: whether customers expand rather than churn, how much of revenue is spent winning the next one, and whether software's gross margin holds as it scales. On its own account, the filing leans hardest on customer concentration, set against the numbers in what the filing emphasizes, below.
- Is it a good business?
- Return on capital has run high across the record (median 47%, above 15% in 9 of 9 years), though buybacks and expensed R&D and brands shrink the capital base, so the figure overstates the underlying economics. The steadier read is owner earnings: roughly 28% of revenue reaches owners as cash, consistently. High, durable returns can mark a moat, but whether this one is real pricing power or an accounting artifact is the judgment the 10-K is for.
No model wrote a word of this. Every line is arithmetic on the company's filings, shown in full in the sections below; the judgment is yours.
Where the money comes from
read the 10-K →Product and maintenance is 91% of revenue, so this is largely a single-line business.
- Product and maintenance91%$4.8B
- Services9%$475M
From the segment footnote of the company's own 10-K. Shares are of total revenue; the profit bar shows each segment's share of segment operating profit, before unallocated corporate costs.
The record, 2016–2025
realized figures from each filing, no estimates| 2016’16 | 2017’17 | 2018’18 | 2019’19 | 2021’21 | 2022’22 | 2023’23 | 2024’24 | 2025’25 | TTMTTMMar 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|
| RevenueRevenue | $1.8B | $1.9B | $2.1B | $2.3B | $2.7B | $3.6B | $4.1B | $4.6B | $5.3B | $5.5B |
| Gross marginGross mgn | — | — | — | — | — | — | — | — | — | 99% |
| Operating marginOp. mgn | 13.5% | 16.7% | 18.5% | 21.1% | 24.1% | 30.1% | 30.6% | 29.1% | 28.2% | 28.3% |
| Net incomeNet inc. | $203M | $204M | $346M | $989M | $591M | $849M | $1.0B | $1.1B | $1.1B | $1.2B |
| EPS (diluted)EPS | $0.70 | $0.73 | $1.23 | $3.53 | $2.11 | $3.09 | $3.82 | $3.85 | $4.06 | $4.28 |
| Owner earningsOwner earn. | $391M | $413M | $543M | $655M | $810M | $1.1B | $1.2B | $1.1B | $1.6B | $1.4B |
| Owner earnings marginOE mgn | 21.5% | 21.2% | 25.4% | 28.0% | 30.2% | 31.4% | 30.5% | 24.1% | 30.0% | 25.9% |
| ROICROIC | 76% | 70% | 48% | 35% | 39% | 47% | 42% | 50% | 44% | 21% |
| Cash & investmentsCash+inv | $468M | $693M | $533M | $705M | $928M | $887M | $1.1B | $2.8B | $3.2B | $1.6B |
| Net debt / (cash)Net debt | ($468M) | ($693M) | ($533M) | ($705M) | ($928M) | ($887M) | ($1.1B) | ($2.8B) | ($3.2B) | ($1.3B) |
| Book value / shareBVPS | $2.55 | $3.53 | $4.58 | $7.50 | $8.92 | $9.98 | $12.48 | $17.07 | $20.03 | $23.97 |
Owner’s Scorecard
Will it survive?
- Can it pay its interest? 12.8×ComfortableOperating income $1.5B ÷ interest expense $117M
Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.
- Not enough data
The filing data didn't include the inputs for this check.
- Debt, net of cash +$3.2BNet cash, debt-freeCash $3.0B + ST investments $154M − debt $0
Cash and short-term investments exceed every dollar of debt by $3.2B, on net the company owes nothing, and can act from strength when others can't. Net debt is the leverage figure that matters; the gross ratio above ignores the cash already set against it. Strategic or illiquid investments aren't counted here.
- Not enough data
The filing data didn't include the inputs for this check.
Is it a good business?
- Not enough data
The filing data didn't include the inputs for this check.
- Cash machineOwner Earnings $1.6B = operating cash $1.7B − capex $142M
What an owner could take out without starving the business. That's 30% of revenue. Treating stock comp as the real expense it is (less $455M of SBC) leaves $1.1B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).
- Cash-backedCash from ops $1.7B ÷ net income $1.1B
How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.
How is the cash used?
- Returns about halfDividends + buybacks $925M ÷ Owner Earnings $1.6B
Of $1.6B Owner Earnings, $925M (58%) went back to shareholders, $0 dividends, $925M buybacks. Net of $455M stock comp, the real buyback was about $470M. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.
- Investing or harvesting? 0.62×HarvestingCapex $142M ÷ depreciation $228M
Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.
Durability & moat, 2016–2025
A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says, judgments, not another chart of the numbers.
- Profitable years 9 of 9
Never lost money over the record, the earnings stability Graham insisted on.
- Operating margin 13% (FY2016) → 28% (FY2025)
Margins widened over the record, pricing power intact or improving.
- Owner earnings growth +14%/yr
Free cash to owners grew about 14% a year over the record.
- Worst year 2016 · 13.5% op. margin
Stayed profitable even in its hardest year, the resilience that survives recessions.
- Share count −0.7%/yr
The share count is shrinking, buybacks are quietly growing your slice of the business.
Solvent is not the same as cheap; growing is not the same as good. These are vital signs, not a verdict, the judgment is yours, and the filing is one click away.
How the cash was used, 2016–2025
Over the record, the business generated $8.7B of operating cash, and how management split it is, as Buffett insists, the job that matters most. Here it reads as a balanced allocator, splitting cash between the business, owners, and the balance sheet.
- Reinvested$852M · 10%
- Buybacks$5.2B · 60%
- Retained (debt / cash)$2.7B · 30%
It reinvested $852M (10%) back into the business and returned $5.2B (60%) to owners, $0 in dividends, $5.2B in buybacks.
Buybacks are gross of stock issued to employees; net of that, the real return to owners is lower (see Management & pay). And the mix alone doesn't grade management, what matters is the return earned on the dollars reinvested (see incremental ROIC in the durability report).
Management & pay
read the proxy →Two questions Buffett actually asks about pay: is stock compensation, a real expense, whatever the income statement pretends, quietly large, and is the top wildly out of line with the floor. He's no populist about it; he just wants pay that's rational and earned, and comp committees that aren't lapdogs.
- CEO pay ratio592:1
What the chief earns for every dollar the median employee makes, per the 2026 proxy. A high ratio isn't proof of anything, some businesses are genuinely top-heavy in scarce skill, but a runaway figure is where Buffett starts asking whether the board is doing its job or just keeping the chair company.
- Stock-based compensation$455M
The slice of the business handed to employees in shares this year, 9% of revenue, equal to 31% of operating profit. Buffett's oldest accounting fight: this is compensation, compensation is an expense, real whether or not the headline earnings admit it. And note the trap, the cash-flow statement adds SBC back, so the operating cash, and the owner earnings drawn from it, are flattered by exactly this amount; counted as the cost it is, what an owner keeps is lower.
Graham’s defensive-investor test
4 of 5 metGraham gave the defensive investor seven numerical criteria in The Intelligent Investor. Here they are, run mechanically on the filings, his framework, not our verdict. Meeting them is a floor of safety, not a reason to buy; missing one is no veto, since many fine modern businesses fail his strictest liquidity tests by design. The worth is in seeing exactly where a company stands against the canon, every number sourced.
- Adequate size PassRevenue ≥ $2B · $5.3B
Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.
- Strong liquidity PassCurrent ratio ≥ 2× · 2.86×
Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.
- Earnings stability PassA profit every year (9-yr record) · no losses
Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.
- Dividend record MissUninterrupted dividends · none paid
An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.
- Earnings growth PassEarnings +33% over the record · +326%
At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.
- Moderate price —P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
Graham's valuation gate, the wall he kept between a sound business and a sound investment. Earnings are $4.06/share and book value $20.03/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.
Graham would be the first to say a checklist is a starting point, not an answer. These are his defensive, bargain-hunter's tests, the cigar-butt lens. Buffett and Munger grew past it, paying fair prices for wonderful businesses; that lens lives in the moat and owner-earnings work above, and both still matter. Clearing Graham’s tests earns a closer look; failing them earns harder questions, not a dismissal.
What the price implies
reverse-DCFA price is the one input we don't pull, you bring it. Type today's close (read it off any broker or quote site) and see the owner-earnings growth you'd have to believe to justify it, set beside what Cadence Design Systems, Inc. has actually delivered. Nothing is stored; the number stays in your browser.
Enter a price above to run it.
Graham capped the multiple at 15×; Buffett and Munger let that rule go, a wonderful business can deserve 50× if the thesis holds. Read it as the bargain-hunter's floor, not a ceiling on good sense.
The discount rate is your interest rate, what a dollar years from now is worth today, anchored to the long-term Treasury yield (~4–5% today, plus whatever premium you want for risk). Drag it toward the risk-free rate and watch how much growth the price suddenly “needs”: interest rates are gravity on valuations.
Owner earnings $1.4B on 274M diluted shares; net cash $1.3B. This is a lens, not a price target, it says what you'd have to believe, not what the company is worth, and it runs on one year of (noisy) owner earnings at assumptions you can see and change.
What the filing emphasizes, FY2025
read the 10-K →Each year a 10-K must name what could go wrong, in the company's own words. Here are the ones Graham and Buffett would stop on, each set against the figure from the same filings that bears on it, anchored to a period you can find in the record above. We point; the judgment is yours.
- Customer concentrationMD&A
Who the revenue leans on. When one buyer is a large slice of sales, that buyer holds the pricing power, and its troubles become the company's.
“No one customer accounted for 10% or more of total revenue during fiscal 2025 or 2024.”
From the recordRevenue exposed (TTM)$5.5B - Pricing power & competitionRisk Factors
Whether the company sets its price or takes it. Durable pricing power is the surest mark of a moat; price competition is the surest mark there isn't one.
“The procurement process is highly competitive and time-consuming, may be subject to political influence and may involve different rules and conditions on the offering or pricing of products and services.”
From the recordOperating margin28.3% now (TTM), off a 30.6% peak (FY2023) - Supplier & input dependenceRisk Factors
A choke point upstream. A sole or limited supplier can dictate terms, and a single shortage can stop the line.
“We depend on a single supplier or a limited number of suppliers for certain hardware components and contract manufacturers for production of our hardware products, making us vulnerable to supply disruption and price fluctuation.”
From the recordGross-margin cushion (TTM)99% - Debt terms & refinancingRisk Factors
The fine print behind the debt. Covenants and near-term maturities decide who is really in control when a year goes badly.
“A breach of the covenants or restrictions under the agreements governing our revolving credit facility and the Senior Notes could result in an event of default under the applicable indebtedness.”
From the recordBalance sheet (TTM)+$3.2B net cash, debt-free · interest covered 12.8× - Litigation & contingenciesRisk Factors
Claims an owner inherits. Most disclosure is boilerplate; this fires only on an actual matter, a named suit, a settlement, a contingency, a number.
“In addition, any failure or perceived failure by us to comply with laws, regulations and other requirements relating to privacy, security and handling of information could result in legal claims or proceedings (including class actions), regulatory investigations or enforcement actions.”
A judgment, not a number, weigh it against the filing yourself. - DilutionRisk Factors
Whether your slice quietly shrinks. New shares fund the company at the existing owner's expense.
“To attract, retain and motivate individuals with the requisite expertise, we may be required to grant large numbers of stock options or other stock-based incentive awards, which may be dilutive to existing stockholders and increase compensation expense, and pay significant base salaries and cash bon…”
From the recordDiluted share count−0.6%/yr (FY2016→TTM) - Cyclicality & demandRisk Factors
How the business behaves when the economy turns. A cyclical earns its keep across the whole cycle, not at the peak.
“The semiconductor and electronics systems industries are cyclical and are characterized by constant and rapid technological change, product obsolescence and price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand.”
From the recordWorst year on record13.5% operating margin (FY2016)
What changed, FY2025 vs FY2024
read the 10-K →Most of a 10-K is boilerplate carried over verbatim; the signal is in what's new. These lines appear this year and weren't there last, figure updates filtered out, so only the language shift remains.
- “Cash Flows Used for Investing Activities Cash flows used for investing activities during fiscal 2025 and 2024 were as follows: Change 2025 2024 2025 vs. 2024 (In millions) Cash used for investing activities $ (460.5) $ (837.1) $ 376.6 Cash used for investing activities decreased during fiscal 2025, …”
- “Department of Justice ("DOJ") that resolved matters relating to export control violations that occurred between 2015 and 2021 primarily involving sales initiated by a Cadence subsidiary of products and services valued at $45.3 million in total over that period to a customer in China, as well as the …”
- “The purchase agreement also provides for customary termination rights for the parties, including the right to terminate the purchase agreement due to the failure to obtain required regulatory approvals on or prior to September 4, 2026 (subject to two three-month extensions, at our election, until Ma…”
- “Facilities and other infrastructure costs included in general and administrative expense decreased during fiscal 2025, as compared to fiscal 2024, primarily due to a decrease in facilities and related resources allocated for general and administrative activities as these resources have been realloca…”
- “Although we generally have limitation of liability provisions in our standard terms and conditions of sale, in some circumstances, we may be required to indemnify a customer in full, without limitation, for certain liabilities, including for losses suffered or incurred as a result of claims of infri…”
Classic text analysis over the filing itself, no model wrote a word of this, and every quote is the company's own.
Peers, Enterprise software
The same industry, side by side on owner economics, compare, don't rank by a single number.● marks best in the group.
| Company | Revenue | Gross margin | Op. margin | ROIC | Owner earn. margin |
|---|---|---|---|---|---|
| SNPSSynopsys Inc | $7.1B | 77% | 13.0% | 2% | 19% |
| SNAPSnap Inc. | $5.9B | 55% | -9.0% | -9% | 7% |
| CDNSCadence Design Systems, Inc. | $5.3B | 99% | 28.2% | 44% | 30% |
| RBLXRoblox Corporation | $4.9B | 78% | -25.2% | -534% | 28% |
| CRWDCrowdstrike Holdings, Inc. | $4.8B | 75% | -6.1% | — | 27% |
| PINSPinterest, Inc. | $4.2B | 80% | 7.6% | 8% | 30% |
| MTCHMatch Group, Inc. | $3.5B | 73% | 25.0% | 27% | 29% |
| DDOGDatadog, Inc. | $3.4B | 80% | -1.3% | -1% | 29% |