⚠ Five Percent on the Capital Owners PaidHigh threat

Analog Devices (ADI) — threat to the moat

ADI's return on invested capital has been below a 9% hurdle every year since the Linear deal, 5.7% in fiscal 2025, because most of its capital is purchase price.

The acquisitions made ADI bigger, better diversified and more profitable in dollars, and they have not yet made its owners a return above what their money costs. On the repo method, return on invested capital was 8.1% in fiscal 2017, 9.3% in 2018, 8.3% in 2019, 7.3% in 2020, 5.1% in 2021, 6.2% in 2022, 7.7% in 2023, 4.3% in 2024 and 5.7% in 20251. Only fiscal 2018 touched a 9% hurdle.

Analog Devices return on capital, FY2025 (%)5.7Including goodwill and intangibles9.0Assumed hurdle34.9Excluding goodwill and intangiblesMoat Explorer calculation, repo method on SEC EDGAR XBRL
The same profit earns 5.7% or 34.9% depending on whether the purchase price counts.

The fiscal 2025 figure is after-tax operating profit of $2,451.6 million over average invested capital of about $42.7 billion2. Most of that capital is goodwill and intangibles; take them out and the return is about 34.9%3. The operating business is fine. The problem is the price.

This matters because the market is not paying for the operating business at book. It is paying 5.71 times book value4, a book that is itself mostly purchase price. A buyer at $395.43 a share5 is paying a premium on top of a premium, and the return on what that buyer pays is lower still.

The upturn will help. Trailing twelve-month net income to August 2026 was about $4,135.0 million6, far above fiscal 2025's $2,267.3 million7, and the amortisation schedule falls after 2029. Both push the reported return up.

The falsifier is plain. If reported return on invested capital for fiscal 2026 does not reach 8%, in a year when revenue is expected to rise by more than a third, the acquisitions will have failed to earn their cost even at the top of a cycle.

References
  1. Moat Explorer calcOn the repo method, return on invested capital was 8.1% in fiscal 2017, 9.3% in 2018, 8.3% in 2019, 7.3% in 2020, 5.1% in 2021, 6.2% in 2022, 7.7% in 2023, 4.3% in 2024 and 5.7% in 2025.
    Moat Explorer calculation, repo method (tools_roic_edgar.py) on SEC EDGAR XBRL for CIK 6281: return on invested capital 13.4% (FY2015), 16.3%, 8.1%, 9.3%, 8.3%, 7.3%, 5.1%, 6.2%, 7.7%, 4.3%, 5.7% (FY2025). FY2025: operating income 2,932.5 times (1 - 444.8 / 2,712.1 = 16.4% tax) = NOPAT 2,451.6, over average invested capital (43,249 + 42,248) / 2 = 42,748; invested capital FY2025 = total assets 47,992.7 - current liabilities 3,245.8 - cash 2,499.4 = 42,248. Excluding goodwill and intangibles: FY2025 42,248 - 26,945 - 8,014 = 7,289; FY2024 43,249 - 26,910 - 9,585 = 6,754; average 7,022; 2,451.6 / 7,022 = 34.9%. — FY2015-FY2025 · publ. September 2026 · source ↗
    Method: NOPAT (operating income times one minus the effective tax rate, capped at 35%) divided by average operating invested capital (total assets less current liabilities less cash and equivalents), SEC EDGAR XBRL. The ex-goodwill figure removes goodwill and net intangible assets from invested capital.
  2. Moat Explorer calcThe fiscal 2025 figure is after-tax operating profit of $2,451.6 million over average invested capital of about $42.7 billion.
    Moat Explorer calculation, repo method (tools_roic_edgar.py) on SEC EDGAR XBRL for CIK 6281: return on invested capital 13.4% (FY2015), 16.3%, 8.1%, 9.3%, 8.3%, 7.3%, 5.1%, 6.2%, 7.7%, 4.3%, 5.7% (FY2025). FY2025: operating income 2,932.5 times (1 - 444.8 / 2,712.1 = 16.4% tax) = NOPAT 2,451.6, over average invested capital (43,249 + 42,248) / 2 = 42,748; invested capital FY2025 = total assets 47,992.7 - current liabilities 3,245.8 - cash 2,499.4 = 42,248. Excluding goodwill and intangibles: FY2025 42,248 - 26,945 - 8,014 = 7,289; FY2024 43,249 - 26,910 - 9,585 = 6,754; average 7,022; 2,451.6 / 7,022 = 34.9%. — FY2015-FY2025 · publ. September 2026 · source ↗
    Method: NOPAT (operating income times one minus the effective tax rate, capped at 35%) divided by average operating invested capital (total assets less current liabilities less cash and equivalents), SEC EDGAR XBRL. The ex-goodwill figure removes goodwill and net intangible assets from invested capital.
  3. Moat Explorer calcMost of that capital is goodwill and intangibles; take them out and the return is about 34.9%.
    Moat Explorer calculation, repo method (tools_roic_edgar.py) on SEC EDGAR XBRL for CIK 6281: return on invested capital 13.4% (FY2015), 16.3%, 8.1%, 9.3%, 8.3%, 7.3%, 5.1%, 6.2%, 7.7%, 4.3%, 5.7% (FY2025). FY2025: operating income 2,932.5 times (1 - 444.8 / 2,712.1 = 16.4% tax) = NOPAT 2,451.6, over average invested capital (43,249 + 42,248) / 2 = 42,748; invested capital FY2025 = total assets 47,992.7 - current liabilities 3,245.8 - cash 2,499.4 = 42,248. Excluding goodwill and intangibles: FY2025 42,248 - 26,945 - 8,014 = 7,289; FY2024 43,249 - 26,910 - 9,585 = 6,754; average 7,022; 2,451.6 / 7,022 = 34.9%. — FY2015-FY2025 · publ. September 2026 · source ↗
    Method: NOPAT (operating income times one minus the effective tax rate, capped at 35%) divided by average operating invested capital (total assets less current liabilities less cash and equivalents), SEC EDGAR XBRL. The ex-goodwill figure removes goodwill and net intangible assets from invested capital.
  4. Third-party estimateIt is paying 5.71 times book value, a book that is itself mostly purchase price.
    stockanalysis.com, Analog Devices statistics, 28 September 2026: 484.57 million shares, trailing P/E 46.96, forward P/E 24.84, P/S 13.80, P/B 5.71, P/FCF 38.81, return on invested capital 10.96% (its own trailing method), institutions 92.63%. — September 2026 · publ. 28 September 2026 · source ↗
  5. Third-party estimateA buyer at $395.43 a share is paying a premium on top of a premium, and the return on what that buyer pays is lower still.
    stockanalysis.com, Analog Devices quote page, close of 28 September 2026: price $395.43, market value $191.61bn, dividend $4.40 (1.11%), 52-week range $223.47-$445.91, 34 analysts, average target $470.72. — September 2026 · publ. 28 September 2026 · source ↗
  6. Moat Explorer calcTrailing twelve-month net income to August 2026 was about $4,135.0 million, far above fiscal 2025's $2,267.3 million, and the amortisation schedule falls after 2029.
    Moat Explorer calculation from Analog Devices reported figures ($ millions unless stated; fiscal years ending late October or early November). Revenue growth: FY2025 11,019.7 / 9,427.2 - 1 = +16.9%; FY2024 9,427.2 / 12,305.5 - 1 = -23.4%; FY2023 12,305.5 / 12,014.0 - 1 = +2.4%; FY2022 12,014.0 / 7,318.3 - 1 = +64.2%; FY2021 7,318.3 / 5,603.1 - 1 = +30.6%; FY2020 5,603.1 / 5,991.1 - 1 = -6.5%; FY2019 5,991.1 / 6,224.7 - 1 = -3.8%; FY2024 revenue fall 12,305.5 - 9,427.2 = 2,878.3, about $2.9bn; FY2026 implied 10,805.6 + 4,300 = 15,105.6, about $15.1bn, 15,105.6 / 11,019.7 - 1 = +37%, 15,105.6 / 12,305.5 - 1 = +23%; Q3 FY2026 quarterly revenue 4,021.9 / 3,076.1 - 1 = +30.7% on Q4 FY2025; 4,021.9 / 2,423.2 = 1.66 times Q1 FY2025. Operating income: FY2024 2,032.8 / 3,823.1 - 1 = -46.8%, a fall of 3,823.1 - 2,032.8 = 1,790.3, about $1.8bn. Gross profit FY2024 5,381.3 / 7,877.2 - 1 = -31.7%. Gross margin FY2015 2,259.3 / 3,435.1 = 65.8%; FY2016 2,227.2 / 3,421.4 = 65.1%; reported gross margin range FY2015-FY2025 57.1% (FY2024) to 68.3% (FY2018); Q3 FY2026 adjusted less reported 72.5 - 67.3 = 5.2 points. Acquisition-related expenses Q3 FY2026 209.2 (cost of sales) + 188.6 (operating expenses) = 397.8; nine months FY2026 619.4 + 565.1 = 1,184.5. People: revenue per employee FY2021 7,318.3 / 24,700 = about $296,000; FY2022 12,014.0 / 24,450 = $491,000; FY2024 9,427.2 / 24,000 = $393,000; FY2025 11,019.7 / 24,500 = $450,000; engineers 13,000 / 24,500 = 53% (FY2025), 11,000 / 24,700 = 45% (FY2021); engineers added 13,000 - 11,000 = 2,000. R&D as a share of revenue: FY2015 637.5 / 3,435.1 = 18.6%; FY2016 653.8 / 3,421.4 = 19.1%; FY2017 968.1 / 5,246.4 = 18.5%; FY2018 1,165.0 / 6,224.7 = 18.7%; FY2019 1,130.3 / 5,991.1 = 18.9%; FY2020 1,050.5 / 5,603.1 = 18.7%; FY2021 1,296.1 / 7,318.3 = 17.7%; FY2022 1,700.5 / 12,014.0 = 14.2%; FY2023 1,660.2 / 12,305.5 = 13.5%; FY2024 1,487.9 / 9,427.2 = 15.8%; FY2025 1,766.0 / 11,019.7 = 16.0%; Q3 FY2026 533.5 / 4,021.9 = 13.3%; R&D FY2024 1,487.9 / 1,700.5 - 1 = -12.5%. End markets: FY2024 over FY2023 Industrial 4,290.3 / 6,565.4 - 1 = -34.7%; Communications 1,091.4 / 1,591.6 - 1 = -31.4%; Automotive 2,837.5 / 2,904.0 - 1 = -2.3%; Consumer 1,207.9 / 1,244.6 - 1 = -3.0%. FY2025 over FY2024 Industrial 4,929.4 / 4,290.3 - 1 = +14.9%; Automotive 3,277.9 / 2,837.5 - 1 = +15.5%; Communications 1,377.9 / 1,091.4 - 1 = +26.2%; Consumer 1,434.6 / 1,207.9 - 1 = +18.8%. FY2017 to FY2025: Industrial 4,929.4 / 2,324.7 = 2.12 times, 9.9% a year; Automotive 3,277.9 / 758.1 = 4.3 times, 20.1% a year; Communications 1,377.9 / 908.6 = 1.52 times, 5.3% a year; Consumer 1,434.6 / 1,255.0 = 1.14 times, 1.7% a year. Consumer share 1,255.0 / 5,246.4 = 23.9% (FY2017), 933.8 / 6,224.7 = 15.0%, 752.3 / 5,991.1 = 12.6%, 624.9 / 5,603.1 = 11.2%, 1,519.9 / 12,014.0 = 12.7%, 1,244.6 / 12,305.5 = 10.1%, 1,434.6 / 11,019.7 = 13.0% (FY2025), Q3 FY2026 397.2 / 4,021.9 = 9.9%. Automotive share 3,277.9 / 11,019.7 = 29.7% (FY2025), Q3 FY2025 857.1 / 2,880.3 = 29.8%, Q3 FY2026 998.2 / 4,021.9 = 24.8%. Communications share Q3 FY2025 354.8 / 2,880.3 = 12.3%, Q3 FY2026 654.5 / 4,021.9 = 16.3%. Industrial plus Communications (4,929.4 + 1,377.9) / 11,019.7 = 57.2% (FY2025); Q3 FY2026 (1,971.9 + 654.5 = 2,626.4) / 4,021.9 = 65.3%. Trailing twelve months to August 2026 (Q4 FY2025 + Q1 + Q2 + Q3 FY2026): Industrial 1,426.5 + 1,489.3 + 1,799.4 + 1,971.9 = 6,687.1; Automotive 852.2 + 794.4 + 871.6 + 998.2 = 3,516.4; Communications 389.8 + 476.8 + 554.7 + 654.5 = 2,075.8; Consumer 407.5 + 399.8 + 397.8 + 397.2 = 1,602.3. Distributor revenue Q3 FY2026 2,327.1 / 1,592.4 - 1 = +46.1%. Geography: China share of revenue 898.6 / 5,246.4 = 17.1% (FY2017); 1,215.9 / 6,224.7 = 19.5%; 1,316.3 / 5,991.1 = 22.0%; 1,348.0 / 5,603.1 = 24.1%; 1,614.4 / 7,318.3 = 22.1%; 2,563.5 / 12,014.0 = 21.3%; 2,229.6 / 12,305.5 = 18.1%; 2,128.8 / 9,427.2 = 22.6%; 2,858.3 / 11,019.7 = 25.9% (FY2025); China growth 2,858.3 / 2,128.8 - 1 = +34.3%; United States growth 3,238.1 / 2,840.4 - 1 = +14.0%; China over United States 2,858.3 / 3,238.1 = 88%; United States share 3,238.1 / 11,019.7 = 29.4% (FY2025), 4,165.3 / 12,305.5 = 33.8% (FY2023). Customers: distributors at 10% or more FY2024 24% + 12% + 12% = 48%; FY2025 24% + 13% = 37% (a second distributor below 10%). Acquisitions and balance sheet: Linear price 15.8bn / FY2016 revenue 3.42bn = 4.6 times; goodwill FY2017 12,217.5 / FY2016 1,679.1 = 7.3 times; goodwill 1 August 2026 27,988.7 / FY2015 1,636.5 = 17.1 times; Maxim goodwill added 26,918.5 - 12,278.4 = 14,640.1, about $14.6bn; Linear plus Maxim 15.8 + 28.0 = 43.8, about $44bn; goodwill and intangibles (26,945.2 + 8,013.8) / 47,992.7 = 72.8% (1 November 2025); (27,988.7 + 7,468.2 = 35,456.9) / 48,424.4 = 73.2% (1 August 2026); other assets 47,992.7 - 26,945.2 - 8,013.8 = 13,033.7; market value over equity 191.61bn / 33.55bn = 5.7 times; over goodwill 191.61 / 27.99 = 6.8 times; amortisation fall FY2026 to FY2030 1,537.5 - 404.2 = 1,133.3; Empower plus Alif 1.5 + 1.35 + 0.2 = 3.05bn; Empower 1.5 / total assets 48.4 = 3%. Cash: free cash flow = operating cash flow less capital expenditure: FY2015 907.8 - 154.0 = 753.8 (21.9% of revenue); FY2016 1,291.3 - 127.4 = 1,163.9 (34.0%); FY2017 1,154.4 - 204.1 = 950.3 (18.1%); FY2018 2,442.4 - 254.9 = 2,187.5 (35.1%); FY2019 2,253.1 - 275.4 = 1,977.7 (33.0%); FY2020 2,008.5 - 165.7 = 1,842.8 (32.9%); FY2021 2,735.1 - 343.7 = 2,391.4 (32.7%); FY2022 4,475.4 - 699.3 = 3,776.1 (31.4%); FY2023 4,817.6 - 1,261.5 = 3,556.1 (28.9%); FY2024 3,852.5 - 730.5 = 3,122.0 (33.1%); FY2025 4,278.6 / 11,019.7 = 38.8%; TTM August 2026 4,937.5 / 13,881.5 = 36%. Capital expenditure as a share of revenue: FY2015 4.5%, FY2016 3.7%, FY2017 3.9%, FY2018 4.1%, FY2019 4.6%, FY2020 3.0%, FY2021 4.7%, FY2022 699.3 / 12,014.0 = 5.8%, FY2023 1,261.5 / 12,305.5 = 10.3%, FY2024 730.5 / 9,427.2 = 7.7%, FY2025 533.6 / 11,019.7 = 4.8%, TTM 607.8 / 13,881.5 = 4.4%; FY2025 over FY2023 533.6 / 1,261.5 = 42%. Cash returned over free cash flow: FY2021 (1,109.3 dividends + 2,605.1 buybacks) / 2,391.4 = 155%; FY2022 (1,544.6 + 2,577.0) / 3,776.1 = 109%; FY2023 (1,679.1 + 2,964.0) / 3,556.1 = 131%; FY2024 (1,795.5 + 615.6) / 3,122.0 = 77%; FY2025 (1,924.4 + 2,164.6) / 4,278.6 = 96%; TTM 5,170 / 4,937.5 = 105%. Buybacks FY2024 615.6 / FY2023 2,964.0 = 21%, a fall of 79%; FY2021-FY2025 2,605.1 + 2,577.0 + 2,964.0 + 615.6 + 2,164.6 = 10,926.3, about $11bn. Dividends per share over diluted EPS: FY2015 1.57 / 2.20 = 71%; FY2018 1.89 / 4.00 = 47%; FY2020 2.40 / 3.28 = 73%; FY2022 2.97 / 5.25 = 57%; FY2023 3.34 / 6.55 = 51%; FY2024 3.62 / 3.28 = 110%; FY2025 3.89 / 4.56 = 85%. Dividend per share growth (3.89 / 1.57) ^ (1/10) - 1 = 9.5% a year. Shares outstanding 484,565,465 / 496,296,854 - 1 = -2.4%; 484,565,465 / 489,654,097 - 1 = -1.0%. Debt: net debt 1 November 2025 = long-term debt 8,145.1 + commercial paper 446.6 - cash 2,499.4 - short-term investments 1,152.9 = 4,939.4; 1 August 2026 = 6,771.6 + 1,344.9 + 1,005.1 - 2,165.9 - 159.1 = 6,796.6; net debt over trailing free cash flow 6,796.6 / 4,937.5 = 1.4 times; cash and short-term investments 2,499.4 + 1,152.9 = 3,652.3 (FY2025 end) and 2,165.9 + 159.1 = 2,324.9 (1 August 2026); commercial paper 1,005.1 / 446.6 = 2.25 times. Working capital: receivables 2,389.6 / 1,436.1 - 1 = +66.4%; inventories 1,931.5 / 1,656.3 - 1 = +16.6%. Earnings and valuation: trailing net income to August 2026 = FY2025 2,267.3 - nine months FY2025 1,479.6 + nine months FY2026 3,347.3 = 4,135.0; market value 191.61bn / 4,135.0 = 46.3 times; FY2026 EPS build reported 6.83 + 3.14 = 9.97, adjusted 8.99 + 3.86 = 12.85; Q4 adjusted EPS guide low end 3.86 - 0.15 = 3.71. Year-end market value over fiscal-year net income: 17.26bn / 696.9 = 24.8 (FY2015); 32.82bn / 805.4 = 40.8 (FY2017); 31.77bn / 1,507.0 = 21.1 (FY2018); 54.58bn / 1,220.8 = 44.7 (FY2020); 92.34bn / 1,390.4 = 66.4 (FY2021); 83.54bn / 2,748.6 = 30.4 (FY2022); 98.54bn / 3,314.6 = 29.7 (FY2023); 105.44bn / 1,635.3 = 64.5 (FY2024); 132.79bn / 2,267.3 = 58.6 (FY2025). Additional: Q3 FY2025 shares of revenue Industrial 1,293.0 / 2,880.3 = 44.9%, Consumer 375.4 / 2,880.3 = 13.0%; Q3 FY2026 Industrial 1,971.9 / 4,021.9 = 49.0%; Industrial share Q1 FY2025 1,080.7 / 2,423.2 = 44.6%; Industrial Q3 FY2026 over Q1 FY2025 1,971.9 / 1,080.7 = 1.82 times, about 82% higher. Consumer growth Q1 FY2026 399.8 / 314.7 - 1 = +27%; Q2 FY2026 397.8 / 323.1 - 1 = +23%. Return on equity FY2025 2,267.3 / average (35,176.3 + 33,815.8) / 2 = 6.6%; FY2024 1,635.3 / average (35,565.1 + 35,176.3) / 2 = 4.6%. Customer relationships net of amortisation 10,335.9 - 5,311.2 = 5,024.7. Dividends paid 1,924.4 / 491.1 = 3.9 times. Regions FY2025 against FY2023: Japan 989.9 / 1,397.1 - 1 = -29.1%; Europe 2,285.6 / 3,001.9 - 1 = -23.9%; China 2,858.3 / 2,229.6 - 1 = +28.2%; rest of Asia 1,485.3 against 1,423.0; United States 3,238.1 against 4,165.3. Share price 395.43 / 445.91 - 1 = -11.3% from the 52-week high; 445.91 / 223.47 = 2.0 times; price-to-sales end FY2022 83.54bn / 12,014.0 = 7.0; trailing Communications 2,075.8 against FY2022 1,855.3. Competitors: Texas Instruments 2025 free cash flow 2,938 / revenue 17,682 = 16.6%; ADI 38.8% - 16.6% = 22.2 points; ADI revenue 11,019.7 / TI 17,682 = 62%; capital expenditure 4,550 / 533.6 = 8.5 times - acquisitions, goodwill, amortisation and valuation. — FY2015-Q3 FY2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in Analog Devices Forms 10-K, 10-Q and results releases, SEC XBRL, and the Texas Instruments 2025 Form 10-K; each operand is stated in the source line.
  7. ReportedTrailing twelve-month net income to August 2026 was about $4,135.0 million, far above fiscal 2025's $2,267.3 million, and the amortisation schedule falls after 2029.
    Analog Devices fourth-quarter and fiscal 2025 results release, Form 8-K exhibit 99.1 - full-year income statement, adjusted measures, cash flow, capital returns and balance sheet. — FY2025 · publ. 25 November 2025 · source ↗
Sources
Generated September 29, 2026