uploads///A_Semiconductors_TXN Efficiency ratio Oct

What Texas Instruments’ Efficiency Ratios Suggest

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Nov. 20 2020, Updated 11:20 a.m. ET

Efficiency ratios

Texas Instruments (TXN) has been transitioning to a 300mm (millimeter) wafer and investing in the fast-growing industrial and automotive markets, boosting its earnings and cash flow. With these improvements, the company aims to maximize its returns per share. The best way to assess a company’s management is through efficiency ratios, which show its ability to generate higher returns from lower investments.

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Return on investment

A company’s ROI (return on investment) measures the income it earns on total investments. Long-term investors and companies use ROI metrics to compare investment opportunities and identify those that generate the highest returns.

Texas Instruments’ TTM (trailing-12-month) ROI is 30.0%, higher than Maxim Integrated’s (MXIM) and Analog Devices’ (ADI) ROI of 12.5% and 9.2%, respectively. However, ROI depends on a company’s capital structure, and it is incorrect to compare TXN’s, MXIM’s, and ADI’s ROI because they have different debt-to-equity ratios and investment costs. A better measure for assessing TXN and peers is ROE (return on equity).

Return on equity

ROE shows the profit a company can generate from shareholder capital. A company can improve its ROE by repurchasing stock or improving net income.

Texas Instruments’ ROE improved from 34.8% in 2016 to 40.9% in the last 12 months. Its TTM ROE is higher than MXIM’s and ADI’s TTM ROE of 22.6% and 13.5%, respectively. Texas Instruments expanded its stock buyback program in September, which could boost its ROE.

Interpreting TXN’s efficiency ratios

Texas Instruments’ efficiency ratios make it an attractive investment for long-term investors. Before investing, long-term investors often look at stocks’ valuation to decide whether growth and returns have been priced in. Next, we’ll review Texas Instruments’ valuation.

Check out all the data we have added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!

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