SNPS, Synopsys Inc
Synopsys Inc is the leader in engineering solutions from silicon to systems, enabling customers to rapidly innovate AI-powered products.
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 Time-based products (49%), License (29%) and Technology Service (22%).
- 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 pricing power & competition, set against the numbers in what the filing emphasizes, below.
- Is it a good business?
- Return on capital has run in the teens (median 15%, above 15% in 5 of 10 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 21% of revenue reaches owners as cash, consistently. Returns like these are solid but short of clear franchise economics; whether they hold is what the 10-K settles, not the multiple.
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 →The biggest segment, Design Automation, is also where the profit is made: 75% of revenue and 84% of segment operating profit.
- Design Automation75%$5.3B84% of profit
- Design IP25%$1.8B16% of profit
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 | 2020’20 | 2021’21 | 2022’22 | 2023’23 | 2024’24 | 2025’25 | TTMTTMApr 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| RevenueRevenue | $2.4B | $2.7B | $3.1B | $3.4B | $3.7B | $4.2B | $4.6B | $5.3B | $6.1B | $7.1B | $8.7B |
| Gross marginGross mgn | 78% | 76% | 76% | 78% | 78% | 80% | 81% | 81% | 80% | 77% | 73% |
| Operating marginOp. mgn | 13.1% | 12.8% | 11.5% | 15.5% | 16.8% | 17.5% | 24.9% | 23.9% | 22.1% | 13.0% | 7.0% |
| Net incomeNet inc. | $267M | $137M | $433M | $532M | $664M | $758M | $985M | $1.2B | $2.3B | $1.3B | $773M |
| EPS (diluted)EPS | $1.72 | $0.88 | $2.82 | $3.45 | $4.27 | $4.81 | $6.29 | $7.92 | $14.51 | $8.04 | $4.04 |
| Owner earningsOwner earn. | — | $562M | $325M | $602M | $837M | $1.4B | $1.6B | $1.5B | $1.3B | $1.3B | $2.6B |
| Owner earnings marginOE mgn | — | 20.6% | 10.4% | 17.9% | 22.7% | 33.3% | 34.7% | 28.5% | 20.7% | 19.1% | 30.3% |
| ROICROIC | 11% | 7% | 11% | 15% | 16% | 17% | 24% | 25% | 25% | 2% | 2% |
| Cash & investmentsCash+inv | $1.1B | $1.0B | $723M | $729M | $1.2B | $1.6B | $1.6B | $1.6B | $4.1B | $3.0B | $2.5B |
| Net debt / (cash)Net debt | ($912M) | ($904M) | ($254M) | ($591M) | ($1.1B) | ($1.5B) | ($1.5B) | ($1.6B) | ($4.0B) | $10.5B | $7.6B |
| Book value / shareBVPS | $20.65 | $21.15 | $22.68 | $26.48 | $31.52 | $33.65 | $35.25 | $39.61 | $57.65 | $171.00 | $159.09 |
Owner’s Scorecard
Will it survive?
- AdequateOperating income $915M ÷ interest expense $447M
Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.
- How heavy is the debt? 14.7×HighTotal debt $13.5B ÷ operating income $915M
Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.
- Debt, net of cash $10.5BHeavy net debtCash $2.9B + ST investments $73M − debt $13.5B
Netting $3.0B of cash and short-term investments against $13.5B of debt leaves $10.5B owed, about 11.5× a year's operating profit, versus the gross figure above. 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.
- Capital-hungryDSO 78 + DIO 82 − DPO 37 days
Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.
Is it a good business?
- Below averageNOPAT $878M ÷ invested capital $38.9B (debt + equity − cash)
The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.
- Cash machineOwner Earnings $1.3B = operating cash $1.5B − capex $169M
What an owner could take out without starving the business. That's 19% of revenue. Treating stock comp as the real expense it is (less $893M of SBC) leaves $456M. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).
- Cash-backedCash from ops $1.5B ÷ net income $1.3B
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?
- Reinvests most of itDividends + buybacks $0 ÷ Owner Earnings $1.3B
Of $1.3B Owner Earnings, $0 (0%) went back to shareholders, $0 dividends, $0 buybacks. 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? 0.26×HarvestingCapex $169M ÷ depreciation $660M
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 10 of 10
Never lost money over the record, the earnings stability Graham insisted on.
- Return on capital ≥ 15% 5 of 10 yrs
A moat shows up as a high return on invested capital that holds year after year, not one good vintage.
- Operating margin 13% (FY2016) → 13% (FY2025)
Margins held roughly steady across the record.
- Reinvestment, incremental ROIC 6%
Reinvested capital earned only a modest return, growth is getting expensive.
- Owner earnings growth +13%/yr
Free cash to owners grew about 13% a year over the record.
- Worst year 2018 · 11.5% op. margin
Stayed profitable even in its hardest year, the resilience that survives recessions.
- Share count +0.8%/yr
Roughly flat share count, little dilution, little buyback.
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, 2017–2025
Over the record, the business generated $10.7B 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$1.3B · 12%
- Buybacks$4.4B · 41%
- Retained (debt / cash)$5.1B · 48%
It reinvested $1.3B (12%) back into the business and returned $4.4B (41%) to owners, $0 in dividends, $4.4B in buybacks. Total debt rose $9.9B across the span.
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 ratio210:1
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$893M
The slice of the business handed to employees in shares this year, 13% of revenue, equal to 98% 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
3 of 6 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 · $7.1B
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 NearCurrent ratio ≥ 2× · 1.62×
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.
- Conservative debt MissDebt ≤ working capital · $13.5B vs $2.3B WC
Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.
- Earnings stability PassA profit every year (10-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 · +477%
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 $8.04/share and book value $171.00/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 Synopsys 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 $2.6B on 192M diluted shares; net debt $7.6B. 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.
- Pricing power & competitionMD&A
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.
“No single factor typically drives our customers' buying decisions, and we compete on all fronts to serve customers in highly competitive markets.”
From the recordOperating margin7.0% now (TTM), off a 24.9% peak (FY2022) - Concentrated dependenceBusiness
What the whole business leans on, a product, a platform, a partner. Concentration cuts both ways, and the filing is where management has to admit it.
“While protecting our proprietary technology is important, our business as a whole is not significantly dependent upon any single patent, copyright, trademark, or license.”
From the recordOwner-earnings margin at stake (TTM)30% - Debt terms & refinancingMD&A
The fine print behind the debt. Covenants and near-term maturities decide who is really in control when a year goes badly.
“The Term Loan Agreement contains a financial covenant requiring that Synopsys maintain a maximum consolidated leverage ratio, as well as certain other non-financial covenants.”
From the recordBalance sheet (TTM)$10.5B heavy net debt · interest covered 2.0× - 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.
“As noted above, on October 31, 2025 and November 25, 2025, respectively, two shareholder class action complaints were filed in the United States District Court for the Northern District of California against Synopsys and certain of our current directors and officers.”
A judgment, not a number, weigh it against the filing yourself. - Regulation & policyMD&A
Rules that can rewrite the economics, tariffs, antitrust, data, export controls.
“The IR Act imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022.”
A judgment, not a number, weigh it against the filing yourself.
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.
- “The Sixth Amendment, among other things, also amended: (i) the applicable margin used to determine the interest that accrues on loans and the facility fee payable under the revolving credit facility to be based on our credit ratings, (ii) the financial covenant thresholds under the financial covenan…”
- “The increase in amortization of acquired intangible assets for fiscal 2025 compared to fiscal 2024 was primarily due to an increase of $257.3 million in amortization of acquired technology-related and contract rights intangible assets mainly in connection with the Ansys Merger, partially offset by a…”
- “The increase in cash provided by operating activities for fiscal 2025 compared to fiscal 2024 was primarily due to higher accounts receivable collections, partially offset by lower net income of $902.7 million, the unrealized loss from settlement of the interest rate treasury lock of $121.6 million …”
- “This was offset by weakness in our Design IP segment, due to several headwinds, including China export control restrictions, such as the Q3 2025 BIS Restrictions (as defined below), which disrupted customer design starts in China, weaker than expected demand from a major foundry customer, and certai…”
- “If growth in the semiconductor and electronics industries or certain sectors within these industries slows or stalls, including, among other things, due to the factors creating an uncertain macroeconomic environment as discussed above, then demand for our products and services could decrease and our…”
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 |
|---|---|---|---|---|---|
| WDAYWorkday, Inc. | $9.6B | 99% | 7.5% | 5% | 29% |
| 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% |