Financial Ratio Analysis: What Adobe Gross Profit Margin Tell Investor?

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Adobe stuns us with an 86% gross profit margin – exceeding even Apple, Amazon, Microsoft, and Google. Yet, in a contrast, its operating margin only at a 29% level. In 2019, The creator of Illustrator generates a 9.5 B gross profit margin but only 3.27 B converted as operating margin. The largest cost of software maker is not its software making or research. What does it mean for shareholders? We try to track this financial ratio layer by layer, from revenue to earning, from production to marketing strategy.

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Illustrator of Balance Sheet. Adobe Case

Goodwill is single largest asset in Adobe Balance Sheet

The two most interesting items in Adobe Balance Sheet is its Goodwill portion and Debt level. As stated in the Q3 report, 50% of Adobe Total Asset is Goodwill – a nonproductive asset and has debt almost equal to its cash and cash equivalent. At a glance, we aren’t impressed, but let’s go on.

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