Teradyne is a designer and maker of automated test equipment and industrial automation systems with a history of high product-level margins and conservative balance-sheet leverage.
The company’s profitability profile is a clear strength: gross margin sits around 58.4%, operating margin about 39.3%, and net margin roughly 20.4%, while return on equity remains elevated at 26.0% in the most recent quarter. Teradyne has also shown long-term earnings expansion, with a five‑year diluted EPS compound annual growth rate near 29.46% and three‑year EPS CAGR of about 6.03%, and liquidity and leverage metrics that are conservative by any measure — interest coverage of roughly 93.1x, a current ratio near 3.03x, and debt-to-equity of about 0.0143.
At the same time there are clear signs of weakening operating momentum and cash conversion. Diluted EPS has fallen from $6.01 at 2021‑12‑31 to $3.77 at 2023‑04‑02, with the most recent EPS growth reported at −34.4%; trailing twelve‑month net income declined from \$971.0M to \$637.1M while operating cash flow dropped from \$1.10B to \$577.9M, producing a situation where net income (TTM \$637.1M) now exceeds operating cash flow (TTM \$577.9M). Quarterly revenue and profitability have also softened — most recent quarter revenue was \$617.5M and quarterly net income was \$83.5M — and financing cash flows show substantial net outflows (TTM financing outflow of −\$767.9M).
Key fundamental metrics to monitor going forward include top‑line and profitability trends reflected in revenue and net income, diluted EPS and revenue-per-share progression [EPS Diluted & Revenue per Share], the pace of EPS and revenue growth [Revenue & EPS Growth], margin stability [Profit Margin Trends], the relationship between net income and operating cash flow [Earnings Quality Analysis], and changes in ROE [Return on Equity (ROE)], along with capital allocation and cash-flow patterns [Strategic Capital Allocation] and shifts in valuation multiples such as the trailing P/E (recently about 28.3x) [Price-to-Earnings (PE) Ratio Trend].
The foundation of business quality and long-term value creation
TERADYNE, INC’s revenue shows clear peaks in late 2018 and 2019 when quarterly revenue exceeded $1.2B (notably $1.53B and $1.24B), followed by a multi-quarter decline and variability through 2020–2023. Revenue recovered to near‑$950.5M in Q3 2021 but trended lower afterward, with the most recent quarter (period end 2023-04-02) at $617.5M.
Net income has been more volatile than revenue. There are large positive quarters through 2018–2021 (examples include $263.8M in 2018-12-31 and $256.7M in 2021-10-03), a pronounced $553.6M quarter ending 2022-12-31, and a decline to $83.5M in the most recent quarter (2023-04-02). The most recent quarterly revenue was $617.5M. The most recent quarterly net income was $83.5M.
Why Growth Matters
Consistent revenue and earnings growth are the lifeblood of successful long-term investments. Companies that can grow their top line (revenue) and bottom line (net income) over many years demonstrate they have products or services customers value and are willing to pay for repeatedly.
Revenue Growth shows whether the company is expanding its market reach, gaining market share, or successfully launching new products.Net Income Growth demonstrates the company can convert that revenue into actual profits while managing costs effectively.
Look for steady, sustainable growth rather than erratic spikes. The best businesses compound earnings year after year, creating tremendous value for shareholders over time. Companies that can grow earnings faster than revenue are improving their profitability—a sign of operational excellence and competitive strength.
Year-over-year growth rates for revenue and earnings per share
Reading the Growth Rate Chart
This chart converts the absolute per-share figures into year-over-year percentage changes, making it easy to see whether growth is accelerating, decelerating, or reverting to trend — regardless of the company's absolute size.
Revenue per Share Growth (1-year, split-adjusted) measures how quickly the top line is expanding on a per-share basis. Sustained positive growth signals that the company continues to win customers and grow its addressable market.EPS Diluted Growth (1-year, split-adjusted) measures how quickly earnings are compounding for each shareholder. When EPS growth consistently outpaces revenue growth, operating leverage and margin expansion are at work.
Look for consistency, not just magnitude. A company that reliably grows EPS 10–15% per year is far more valuable than one that alternates between 50% spikes and deep contractions. Negative EPS growth during a period of positive revenue growth is a red flag — costs are rising faster than sales. Quarters where both lines converge near zero or go negative deserve close scrutiny.
How revenue converts to net income for the most recent annual period
Over the period Jan 2019 to Dec 2019, Teradyne Inc converts approximately 58¢ of every revenue dollar into gross profit (gross margin: 58.4%).After accounting for operating expenses and taxes and expenses, the company retains 20.4% as net profit margin, resulting in $0.47B in net earnings.
Period Information
Report Type: Annual (10-K)
Period: Jan 2019 to Dec 2019
Analyzing long-term margin stability and competitive positioning
TERADYNE, INC's gross margin has been stable in the high-50% range in the most recent reported periods (58.1% at 2018-12-31 and 58.4% at 2019-12-31), reflecting steady product-level profitability.
Operating margin was 39.3% for the trailing twelve months ending 2019-12-31, representing the most recent level of operating profitability.
Net profit margin showed intra-year variability in 2019—21.5% at 2018-12-31, a decline to 14.9% at 2019-06-30, followed by a recovery to 20.4% at 2019-12-31—an observable inflection within that year.
Looking further back, gross margin ranged from 61.2% (2012-12-31) down to 50.0% (2013-03-31) before settling near the high 50s in later years.
The most recent reported values are: Gross Margin 58.4%, Operating Margin 39.3%, and Net Profit Margin 20.4%.
Understanding Profit Margins
Between Jan 2019 and Dec 2019, Teradyne Inc converts every dollar of revenue through the following stages:
Sustainable competitive advantages reveal themselves through consistently superior profit margins over extended periods. Companies with durable economic moats maintain pricing power and operational efficiency that competitors struggle to match.
A sign of durable competitive advantage is earning sustained higher margins than competitors.Look for margins that remain stable or improve over time, especially during economic downturns. Declining margins may signal increasing competition, pricing pressure, or deteriorating business fundamentals.
Comparing reported earnings to actual cash generation
TERADYNE, INC's trailing twelve-month net income has declined over the most recent periods, falling from $971.0M at 2022-04-03 to $715.5M at 2022-12-31 and most recently to $637.1M at 2023-04-02. Operating cash flow on a TTM basis also contracted from $1.10B at 2021-12-31 to $577.9M at 2022-12-31. The most recent data show net income exceeding operating cash flow, reversing the earlier period (end-2021) when operating cash flow surpassed reported net income.
The material inflection occurred between the 2021 and 2022 reporting windows: operating cash flow dropped from $1.10B (2021-12-31) to $577.9M (2022-12-31) while net income fell more gradually, producing the current earnings vs. cash-flow gap. The most recent Net Income (TTM) was $637.1M and the most recent Operating Cash Flow (TTM) was $577.9M.
The Earnings vs. Cash Flow Gap
Reported earnings (Net Income) doesn't always reflect actual cash generation. Companies use accrual accounting, which recognizes revenue when earned and expenses when incurred—not when cash actually changes hands. This creates timing differences and opportunities for accounting discretion that can mask underlying business health.
Net Income (the "earnings" number) can be influenced by non-cash items like depreciation, stock-based compensation, and changes in accounting estimates.Operating Cash Flow, however, shows the actual cash the business generates from its core operations—a harder number to manipulate.
Trailing Twelve Months
What to Look For
Key Insight: Companies with durable competitive advantages typically show operating cash flow that meets or exceeds net income over time, demonstrating they convert accounting profits into actual cash that can be returned to shareholders or reinvested in the business.
Measuring management's efficiency at generating profits from shareholder capital
TERADYNE, INC's return on equity has remained elevated in recent quarters but shows a clear decline from the 2021 peak. ROE reached 38.2% in July 2021, then moved down to 29.2% by the period ending and to 26.0% in the most recent quarter, indicating a downward trend while staying above commonly cited strong levels.
Earlier data show a pronounced recovery from a negative ROE in 2016 (-6.2%) to roughly 30% by 2018 (29.7%), with the highest reported readings occurring in 2021 before the subsequent moderation. The most recent reported Return on Equity (ROE) was 26.0% (period end ).
The Gold Standard of Profitability
Return on Equity (ROE) is a powerful measure of how effectively a company's management is using the money shareholders have invested. Calculated by dividing Net Income by Shareholders' Equity, it reveals how much profit is generated for every dollar of equity capital.
A consistently high ROE (typically above 15-20%) is often the signature of a "quality" business with a durable competitive advantage. It indicates that the company can generate high returns on its own capital, which it can then reinvest at these high rates to compound value over time.
What to Look For:
How the company generates and deploys its cash
TERADYNE, INC.'s trailing twelve-month operating cash flow has declined from a peak of $1.10B at 2021-12-31 to $577.9M at 2022-12-31, showing a notable downshift in cash generated from core operations in the most recent year.
Investing cash flows have likewise moderated recently: after being $120.4M at 2021-12-31 the TTM investing cash flow fell to $43.8M at 2022-12-31. Historical inflection points in the series include a large negative investing outflow around 2020-12-31 (-$569.8M) and an unusual positive investing inflow at 2018-12-31 ($923.0M).
Financing cash flows show persistent net outflows over the trailing periods, with a TTM financing outflow of -$893.0M at 2022-12-31 easing modestly to -$767.9M at 2023-04-02.
The most recent operating cash flow (TTM) was $577.9M. The most recent investing cash flow (TTM) was $43.8M. The most recent financing cash flow (TTM) was -$767.9M.
Understanding Company Strategy
Capital allocation refers to how management decides to spend and invest the company's cash. Analyzing the three primary categories of cash flow reveals a company's true operational strategy:
What to look for: Is the company bootstrapping (funding growth solely from operating cash)? Are they borrowing to fund aggressive expansion or dividends? Or are they capital raising by issuing new shares, potentially diluting your ownership? A healthy, mature company typically generates strong operating cash, moderately invests in growth, and returns the surplus to shareholders through financing activities.
Trailing Twelve Months
Net assets attributable to each share — the accounting floor of intrinsic value
Why Book Value per Share Matters
Book value per share is the net worth of the company — total assets minus total liabilities — divided by shares outstanding (split-adjusted). It represents the theoretical liquidation value per share if every asset were sold and every liability repaid at balance-sheet carrying values. It is the accounting foundation upon which much of equity valuation is built.
A steadily rising book value per share is one of the most reliable signals of compounding wealth creation. It means the company is retaining earnings and building net worth faster than it is returning capital or eroding it. Warren Buffett famously tracked Berkshire Hathaway's book value per share for decades as his primary measure of intrinsic value growth.
Context is essential. Asset-heavy businesses (banks, manufacturers, utilities) should be judged by book value more directly than asset-light businesses (software, consumer brands), where intangible assets like intellectual property and customer loyalty may far exceed their balance-sheet carrying values. A company trading at a large premium to book value is not necessarily overvalued — it may simply possess competitive advantages that accounting rules do not capture. Conversely, a declining book value per share — especially over multiple years — is a serious warning sign of capital destruction.
How much of the company is financed by debt versus shareholders' equity
Reading the Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio compares total financial debt to shareholders' equity. A ratio of 1.0 means the company has borrowed one dollar for every dollar of equity; a ratio of 2.0 means it has borrowed twice as much as it owns. Financial leverage amplifies both returns and risk: in good times, debt turbocharges equity returns; in bad times, it accelerates losses and can threaten solvency.
Trends matter more than a single number. A rising D/E ratio can mean the company is taking on debt to fund growth — potentially value-creating if returns exceed the cost of capital. But it can also mean equity is being eroded through losses or that the business is borrowing simply to sustain operations. A falling D/E ratio generally reflects strengthening financial health: earnings are being retained, debt maturities are being paid down, or both.
Industry norms vary enormously. Capital-intensive sectors (utilities, real estate, financials) routinely carry high D/E ratios that would be alarming in, say, a technology company. Always compare against sector peers. As a rough rule of thumb, a D/E above 2× in a cyclical business warrants careful scrutiny of interest coverage and refinancing risk.
Short-term liquidity — can the company cover its near-term obligations?
Liquidity: Can the Business Pay Its Bills?
The current ratio is calculated as current assets divided by current liabilities. A ratio of 1.5 means the company has $1.50 of short-term assets — cash, receivables, inventory — for every $1.00 of obligations due within the next twelve months. It is the most direct measure of near-term financial resilience: can the business meet its obligations without needing to raise new capital or sell long-term assets at a discount?
A ratio above 1.0 is generally healthy, meaning current assets exceed current liabilities. A ratio consistently above 2.0 may indicate the company is holding excess cash or inventory that could be deployed more productively. A ratio below 1.0 is a warning sign — the company is relying on future cash generation or external financing to cover its near-term obligations, which is manageable in normal conditions but dangerous during a downturn.
Trends and context matter.A declining current ratio isn't always alarming — highly efficient businesses (e.g., large retailers with reliable daily cash flows) often run leaner balance sheets intentionally. Conversely, a rapidly rising current ratio can signal slowing sales causing inventory to build, or customers taking longer to pay. Always compare the trend against industry peers and cross-reference with the cash flow statement to assess whether the business is genuinely liquid or just holding non-cash current assets.
How much the market is paying for each dollar of company earnings
TERADYNE, INC's trailing twelve-month P/E has moved between roughly the high teens and high twenties in the most recent quarters, with a noticeable uptick in the latest period. After 27.2x at 2021-12-31, the ratio fell to 20.7x on 2022-04-03 and 20.3x on 2022-12-31, then rose to 28.3x in the most recent quarter (period ending 2023-04-02). A shorter-term trough occurred at 18.4x on 2021-10-03 within this sequence.
Over the longer history provided, the P/E has shown wider swings, ranging from 6.2x (2011-12-31) to 41.1x (2014-12-31), with intermittent gaps in 2016 data. The most recent trailing twelve-month P/E ratio for TERADYNE, INC was 28.3x.
What Is the PE Ratio?
The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics in investing. It divides the current stock price by the company's earnings per share (EPS), revealing how much investors are willing to pay for each dollar of earnings. A high PE can signal that the market expects strong future growth, while a low PE may suggest undervaluation—or reflect genuine concerns about the company's prospects.
Context matters:PE ratios vary significantly across industries. High-growth technology companies routinely trade at PE ratios above 30x or 40x, while mature, low-growth sectors like utilities or financials often trade closer to 10–15x. Always compare a company's PE to its own history and its industry peers, not just an absolute number.
What to Look For:
Key Insight:The PE ratio is a snapshot of market sentiment and expectations. Tracking it over time alongside earnings trends reveals whether the market's valuation has expanded or contracted—and whether that change is justified by fundamentals.