Since everybody in the financial markets is waiting these days for the Federal Reserve to begin raising interest rates (probably at its next meeting in March), today let’s look at the various ways that Calcbench subscribers can research firms’ disclosures about debt levels and interest rates — so you can have a better understanding of which firms might suffer what consequences from those rate hikes.
The best place to begin is with our Interactive Disclosures database, where you can find detailed information about individual firms’ specific debt loads. Almost all firms make disclosures about debt levels, and you can find those by selecting “Debt” from the pull-down menu on the left side of your screen. In fact, you’ll often see those disclosures readily available, grouped into short- and long-term borrowings.
Figure 1, below, shows a typical example from Lockheed Martin ($LMT). We picked Lockheed at random, only because the company filed its 2021 annual report this week. When we went to the debt disclosures, we found this gorgeous table of notes payable.
Right away we can see that Lockheed is paying 3.1 percent on $500 million due in 2023. Well, numerous Wall Street observers have been saying lately that the Fed will raise interest rates several times by then. So one might reasonably ask Lockheed during an earnings call whether it has any concerns about future debt financings that might happen in 2023 or beyond, when those halcyon days of interest rates near 3 percent may well be long gone.
While we’re staring at Figure 1, notice that all those interest rates and debt amounts are active hyperlinks. If you move your cursor over them, you can find the exact XBRL tag that Lockheed used to file those disclosures — and you can also use those tags on our Multi-Company database, to search for similar disclosures across large groups of firms.
For example, the XBRL tag for the interest rates is “DebtInstrumentInterestRateStatedPercentage.” The tag for the debt amounts is “DebtInstrumentCarryingAmount.” (Never have we claimed that XBRL tags are especially sexy or stylish.)
If you take those tags and search the S&P 500 on our Multi-Company page, you see something like Figure 2, below.
The tags can be pasted into the search field labeled Add XBRL Tag. You could also enter a large number of other debt-related terms in the Standardized Metrics field immediately to the left of the XBRL field. For example, start typing in “Debt” and you’ll get at least a dozen matches, including…
That last one might be particularly interesting now, since rates are likely to float upward throughout the year.
Even better: notice that little “Trace” option next to the $165.45 billion in debt listed for AT&T. As always, you can use our trace feature to find that exact disclosure in the footnotes. We used AT&T as an example, but you can use the trace feature on all those results, to see exactly what a company said and how it arrived at that amount.
And one other trick: you can use the Segments, Rollforwards, and Breakouts database as another way to view debt, interest rates, and maturity dates for one or more companies.
Just go to the field at the top of the page that says Data Set, and select “Debt Instruments” from the pull-down menu. You’ll then get results for each company in your sample, organized by each debt instrument that company has. For example, we set our sample to the Dow Jones Industrial Average. Figure 3, below, shows the top slice of results.
Calcbench is also happy to help subscribers with more sophisticated queries; email us at email@example.com and we can talk things through.
Suffice to say that Calcbench has a lot of data about debt levels, interest rates, maturity dates, and so forth — and if the Fed watchers are correct, we’ll all need to be thinking about those details much more in quarters to come.
Microsoft announced earlier this week that it will acquire video game giant Activision Blizzard in an all-cash deal worth roughly $68.7 billion. The strategy in the merger does have a lot of merit: Microsoft will be able to run Activision’s enormously popular games on is XBox console, and become one of the world’s largest gaming companies by revenue.
We at Calcbench wanted to consider a simpler analysis. How will Microsoft afford this?
Clearly Microsoft ($MSFT) can afford to make the acquisition; the company has been sitting on at least $130 billion in cash, equivalents, and short-term investments for years. But how quickly could Microsoft recoup the $68.7 billion it will pay out for Activision ($ATVI) once the deal closes?
One way to get a sense of that answer is to look at Microsoft’s free cash flow, defined as the amount of money a firm has left over after paying its operating expenses and capital expenditures. Figure 1, below, charts Microsoft’s quarterly free cash flow since the start of 2018. Note the trend line in red.
On average, Microsoft has generated $11.66 billion in free cash flow every quarter, including the pandemic-induced tumult of 2020 and the supply chain-disrupted 2021.
Granted, we don’t know how free cash flow will perform in the future. Nor would every cent of Microsoft’s free cash go to paying for the Activision deal. Still, Microsoft’s routine business operations are throwing off plenty of cash for management to consider big things — like, say, a mega-deal to transform the video game industry.
Moreover, the combined business would also have the free cash flow from Activision Blizzard, shown below in Figure 2. The numbers are far lower than Microsoft’s, but the quarterly average is still $482.8 million.
How can you conduct your own research on cash-related disclosures? Our Multi-Company database is one place to start; you can select the target companies you want to study, and then enter any of numerous cash-related metrics in the search fields. You can also try our Bulk Data Query page, which also lists lots of cash disclosures that you can search and export easily.
The Activision Blizzard deal will be Microsoft’s largest acquisition ever, and since we’re talking about the tech sector we also have to ask: How much of that $68.7 billion will go to goodwill?
At the moment, we don’t know. Microsoft hasn’t yet provided a full purchase price allocation, and might not do so for several quarters yet. For comparison purposes, however, consider Microsoft’s acquisition of LinkedIn in 2016.
The headline, announced in June 2016, was that Microsoft would pay $26.2 billion for LinkedIn. Only at the end of that year did Microsoft disclose a complete purchase price allocation — where the price had risen to $27 billion, and 63.6 percent of that amount ($16.8 billion) was accounted as goodwill.
Will we see something similar here? The way to find out is to set your Calcbench email alerts for Microsoft updates; and then use our Segments, Rollfowards, and Breakouts database to see how the deal’s PPA is reported.
Everybody likes to speculate about mergers, so today let’s have some fun. With all the cash that the largest publicly traded S&P 500 firms have at their disposal, how many other S&P 500 firms could those big fish buy if they wanted to do so?
After all, it’s no secret that some firms have so much cash and short-term equivalents that those holdings are larger than the entire market cap of other firms. So Calcbench decided to quantify that concept, by comparing S&P 500 firms’ total cash and short-term equivalents against market cap as of Dec. 31, 2021. That gives us a sense of how much acquisition power those largest, richest firms truly have.
Table 1, below, is the result. These are the 20 non-financial S&P 500 firms with the biggest piles of cash and short-term investments at the end of Q3 2021; and the number of other S&P 500 firms those top 20 theoretically could buy, based on the market cap of the smaller firms as of Dec. 31, 2021.
In other words, Google had enough cash and short-term equivalents last quarter to buy any one of 436 firms within the S&P 500. We even added another 20 percent to the market cap of all firms, since most acquisitions do happen at a premium over the target’s market value — and Google could still buy any of 419 other firms within the S&P 500!
What’s most striking is that the five firms with the largest cash piles, able to buy the most other S&P 500 firms, are all Big Tech companies. That’s an extraordinary amount of potential purchasing power, even if those five firms have other ideas for the money.
Indeed, when you think about it, that would be an excellent question for an analyst to ask on an earnings call: What does the company plan to do with so much cash? Mergers? A one-time dividend? Reinvestment in operations? Investment in startups? Or will the company keep sitting on piles of cash until further notice?
While we’re on the subject, some firms have even more potential buying power locked up in long-term marketable securities — that is, financial assets that could be converted into cash, just not immediately and perhaps not at current market value.
Let’s look at the balance sheet of Apple ($AAPL) as an example:
Apple has $34.94 billion in cash and cash equivalents; plus another $27.7 billion in current marketable securities. That gives us a total of $62.64 billion, which places Apple fourth on our table above.
But Apple also has another $127.88 billion in non-current marketable securities. What are those? We used the Calcbench trace function, and found this breakdown in Apple’s footnotes (the non-current assets are listed in the right-side column):
The $127.88 billion is a collection of securities that presumably have long-term maturity dates. Perhaps a company could sell such assets to a private party to raise cash, but that would take time and the sale might happen at a discount to face value. So the line-item is interesting to note, but not directly relevant to our purposes here today.
Then again, who cares? The numbers from Table 1 alone show that the biggest fish in the market aren’t just big; they’re huge.
Like every other market watcher these days, Calcbench is still poring over financial data to uncover fresh clues about the possible direction of inflation in 2022. We already wrote recently about the rising cost of revenue for large companies.
So today we asked: What about sales, general, and administrative (SG&A) costs? Where have they been going lately?
Figure 1, below, tells the tale. We charted SG&A costs among the S&P 500 from third-quarter 2018 through third-quarter 2021. Altogether, costs rose from $463.1 billion to $550.5 billion — a jump of 18.9 percent.
You can see the predictable drop in mid-2020 when much of the world was in lockdown. We also noted the decline in the fourth quarter of both 2019 and 2020; that might be a cyclical thing, and we’ll revisit the numbers later this spring to see if Q4 2021 shows a similar trend.
Regardless, that trend line in red tells the tale: SG&A costs are rising swiftly.
On the other hand, we also split that three-year period into two smaller periods and compared the two, to see whether SG&A costs have been accelerating since the world exited lockdown in summer 2020. If that were the case, that could be another clue that inflation is rising, yes?
Well, the numbers might not support that thesis. Consider:
So SG&A costs are rising more rapidly today than they were pre-pandemic, but not by all that much.
If Calcbench subscribers want to choose their own adventure along these lines, our Multi-Company page or our Bulk Data Query page can pull the overall data. You could screen your sample population by industry (maybe some sectors are feeling more pressure than others?) or compare SG&A costs against revenue growth, for example.
There are lots of ways to play with the data, and the data itself — as always, we have that in spades.
Food maker General Mills ($GIS) filed its latest earnings release today. The good news is that revenues rose more than 6 percent from the year-earlier period.
The bad news, however, is that operating profit fell 13 percent, largely because of “significant input cost inflation.”
Calcbench has been keeping tabs lately on the cost of goods sold, supply chain bottlenecks, and other inflationary pressures, so General Mills caught our attention. The company makes Cheerios cereal, Betty Crocker cake mix, Green Giant vegetables, and lots more. That requires a lot of inputs, and they’re getting more expensive.
The three headline numbers:
Figure 1, below, shows the overall income statement included in the release this morning.
As always, however, the more interesting details about specific operating segments and larger market trends were tucked away further down the earnings release. For example…
And we’d be remiss if we didn’t flag some troubling talk in General Mills’ outlook for the first six months of 2022 (which are the third and fourth quarters of the company’s fiscal year).
Adjusted operating profit — OK, that’s a non-GAAP metric, but we’ll allow it for now — is expected to decline 1 to 4 percent, reflecting “significantly higher input costs than originally expected,” among other factors.
General Mills goes on to say (emphasis added by us), “For the full year, the company now anticipates cost of goods sold headwinds will be approximately $500 million higher than what was assumed in its initial fiscal 2022 outlook, inclusive of higher input cost inflation, which is now expected to be 8 to 9 percent, as well as elevated costs related to supply chain disruptions.”
So, the birds you see flying over General Mills’ headquarters in Minneapolis are inflation hawks. Adjust your macro-economic analyses of the upcoming year accordingly, before they poop all over the models we all thought were fine six months ago.
By the way, all this earnings release data hit Calcbench databases by 7:06 a.m. this morning. That’s plenty of time before the market open; if you use our Excel Add-In for press release data, you can have the data at your fingertips while your Cheerios are still crunchy.
Calcbench tracks all manner of financial data — but we also track an extensive number of important profitability and liquidity ratios, too. A recent enforcement action from the Securities and Exchange Commission is a great example of why such ratios are important for financial analysis, so let’s take a look.
The company in question is American Renal Associates ($ARA), a kidney dialysis firm that the SEC charged with accounting fraud. American Renal was accused of manipulating certain revenue adjustments known as “topsides,” where the company sometimes delayed recognizing the revenue until a later period, so executives could keep hitting financial performance targets one quarter after another. (American Renal agreed to pay $2 million to settle the charges, without admitting or denying the allegations against it.)
Financial reporting shenanigans like that are known as “cookie jar accounting.” A company receives revenue from a transaction, but rather than report that revenue in the proper period, the company keeps it “in the cookie jar” until some later period where executives want to hit financial targets; then they report it.
Maneuvers like that give investors a false sense of the firm’s performance. They are a big no-no in financial reporting.
OK, back to American Renal Associates. How did the company hide its revenue? And how might an analyst sniff out such a scam? As explained in the SEC’s settlement order, ARA tinkered with its Days Sales Outstanding metric.
DSO measures the average number of days a firm needs to collect payments on services measured; you calculate it by dividing accounts receivable into a revenue number (usually total credit sales), and then multiply that result by the number of days in the period. A high DSO number (say, over 45) means the company is taking longer to collect revenue, and that’s money the company can’t use to generate new business.
The SEC’s complaint was that American Renal routinely touted a DSO number that the company said was both stable and lower than its peers. See Figure 1, below. American Renal’s DSO is on the left in blue, the competitors’ in green on the right.
In truth, the SEC said, American Renal executives sometimes delayed reporting revenue from one period into the next. That maneuver made the next period’s revenue number larger, and therefore the DSO number would be smaller (because revenue is the denominator for the DSO formula; the larger the denominator, the smaller the resulting DSO).
What is the Calcbench angle in all this? That we allow subscribers to search for DSO disclosures — which you can then compare to a firm’s peer companies, to see who might be an outlier worthy of skepticism.
Figure 2, below, shows a sample of the S&P 500 with revenue, accounts receivable, and DSO; all plucked from Calcbench data archives using the Multi-Company page.
In our above example, we just sorted the S&P 500 alphabetically. You can design your own peer group, or start by researching one company in our Company-in-Detail page and then comparing to a peer group Calcbench automatically generates for you. (Peek at the upper-right corner while you’re studying a company; there you’ll see the ticker symbols of four closely related peers.)
You can also search for DSO disclosures over time (either annually or quarterly) to see which firms experience large swings in DSO — or no swings at all, which apparently was the issue with American Renal.
One of the country’s top banking regulators published a report last week looking at various risks to the financial system. One issue the report flagged was the growing amount of debt at non-financial companies.
Loyal readers of this blog know the drill by now. We wondered, how much debt has Corporate America been racking up lately, anyway? With a few quick keystrokes, we pulled up the answer.
Figure 1, below, shows total debt among 410 non-financial firms in the S&P 500 since the start of 2019.
Total debt among these firms rose 18.2 percent, from $4.64 trillion at the start of 2019 to $5.48 trillion in Q3 2021. Note the bulge in borrowing that happened in first-half 2020.
On several levels that’s not surprising. First, plenty of companies borrowed cash simply to assure that they could keep going during the pandemic; there was real fear and uncertainty about liquidity. Second, even among businesses that had a strong financial position, the Fed had cut interest rates to rock-bottom levels — so why not borrow while money was so cheap?
Figure 2, below, shows the trend in average debt load among the same companies, and tells much the same tale. Average debt per firm rose 17.3 percent, from $12.1 billion at the start of 2019 to $14.2 billion by Q3 2021.
Same bulge in the first half of 2020, same tapering toward Q3 2021, and almost the same slope of the trend line over time.
Calcbench users can research debt levels in multiple ways, both at individual firms and among large groups of firms altogether.
As always, one good place to start is at our Multi-Company page. That page allows you to search our set of standardized disclosure metrics, and we have numerous such metrics related to debt: long-term debt, short-term debt, total debt, floating rate debt, commercial paper debt, and many more.
Figure 3, below, shows the choices that come up when you enter “debt” into the search field, and that list is nowhere near complete.
On the Multi-Company page, you could also add other standardized disclosures to your search, if you want to track debt relative to some other number — say, revenue, or assets, or cash from operations.
You can also use the Interactive Disclosures page to research specific firms and their disclosures about debt, which are often voluminous and richly detailed. For example, we pulled up the latest quarterly report from Google ($GOOG) and looked at its debt disclosures. Figure 4 is a sample of what you see.
Remember that for any highlighted number, you can move your cursor over that number to see its XBRL tag and you have an option for “See tag history.” Click on that option, and a box will open to show what the company reported for that disclosure in prior periods. So for example, one could hover over those long-term debt numbers ($14 billion at the end of 2020, $13 billion at the end of September 2021) to see a much longer history of what Google had been reporting.
And we’d be remiss if we didn’t also suggest that you skim the Management Discussion & Analysis disclosures, to see whether you can find any important, additional context there. For example, some firms might be racking up the debt to complete a lucrative merger; others might be racking up debt because they needed the cash to stay operative during the pandemic. Unto itself, total debt is not necessarily an informative metric — you need to know the context.
Thankfully, Calcbench has both. The rest is up to you.
Calcbench often talks about the importance of tracking what companies say about their goodwill and intangible assets, and particularly how those assets fit into purchase price allocation data that companies report about the acquisitions they make.
We have yet another example of that point from Thor Industries ($THO) and its latest quarterly report, filed on Wednesday morning.
In the Acquisitions section of the footnotes, Thor shares the details of its AirX Intermediate Inc. acquisition. “Airxcel,” as the business is called, manufactures components for recreational vehicles, and Thor acquired the company back in September to strengthen Thor’s own business of selling RVs and related machinery.
At the time the deal was announced, Thor valued the acquisition at $750 million. In this week’s filings, we finally see the purchase price allocation details. See Figure 1, below; numbers are in thousands.
First, we see that goodwill is valued at $368.6 million, 48 percent of the $768.5 million in total assets acquired. Other intangible assets are another $402.2 million — which means that altogether, goodwill and intangible assets are more than the total purchase price. (They add up to $770.1 million.) Only when you net out liabilities and other related assets does one get back to that original $750 million number, which actually is $745.1 million.
Second, notice that these intangible assets will be amortized over time. That’s typically the case with intangible assets, but what matters here is that Thor discloses the amortization period:
On the acquisition date, amortizable intangible assets had a weighted-average useful life of 18.3 years. The customer relationships were valued based on the Discounted Cash Flow Method and will be amortized on an accelerated basis over 20 years. The trademarks were valued on the Relief from Royalty Method and will be amortized on a straight-line basis over 20 years. The design technology assets were valued on the Relief from Royalty Method and will be amortized on a straight-line basis over 10 years. Backlog was valued based on the Discounted Cash Flow Method and will be amortized on a straight-line basis over 2 months. The vast majority of the goodwill recognized as a result of this transaction is not deductible for tax purposes.
Those details help an analyst model out the decline in asset value into the future, so you can get a better sense of the true value of the merger. Even if this specific merger doesn’t strike you as a significant deal for Thor (which makes roughly $12.3 billion in annual revenue and has $6.6 billion in total assets), the disclosures remind us yet again to always read the footnotes. You can find a trove of data tucked away there that will help with in-depth analysis.
Calcbench subscribers can find purchase price allocation data in several ways. First, as we demonstrated above, you can always search the Interactive Disclosures database to see what companies say in their Business Combinations or Acquisitions disclosures.
Second, we recently launched a dedicated Business Combinations page, where you can look up deals and purchase price allocation data by individual companies. For example, here is what you see when you search for Thor Industries:
The Airxcel is right there in the second line, and you can scroll across to see how much was allocated to each specific category (cash, inventory, goodwill, intangibles, and so forth).
You can also use our Segments, Rollforwards, and Breakouts database to search in a more targeted way. We posted a detailed explanation of how to look up “PPA” data a while back, and it’s worth reading if you want a quick tutorial.
And if you specifically want more information about the rising importance of goodwill in purchase price allocation, we have that in spades. Our most recent analysis of goodwill assets was published in September, plus a webinar we hosted on goodwill, and other research reports we’ve published in the past. Whatever you’re looking for, we’ve got the data.
Every so often, we dig into our segments disclosure tools and update our readers on the amount of business that firms generate from China. Here is that update. For a tutorial on how you can do this for yourself, see this post from August of 2019.
Without further ado, here is the data. We were surprised by the top 10, (we always are), so we double checked them and lo and behold, they are correct. Yes, Monolithic Power Systems and Qualcomm do make 60% of their revenue from Chinese customers!
* The data is taken from the last available annual filing which in most cases is the 10-K filed in early 2021 for the period ending December 2020.
If all you financial analysts feel like you’re doing more work this year, there may be good reason for that: for the first time in years, the total number of 10-Q filings submitted to the Securities and Exchange Commission is going up.
It’s true! Calcbench recently decided to tally the total number of 10-Q filings by year for the last decade, and found that after a long decline throughout the 2010s, the total number of filings spiked back upward in 2021 — largely due to SPACs, special purpose acquisition companies.
Figure 1, below, tells the tale. The SEC received more than 21,000 10-Q filings in 2012. Then the annual total drifted downward starting in 2013 to a low of 16,963 filings in 2020, a drop of 24.6 percent.
That decline throughout the 2010s is no surprise. The number of publicly traded firms on U.S. markets has dwindled steadily for 20 years, mostly due to one publicly traded firm acquiring another or private equity groups taking a publicly traded firm off the market.
This year, however, the trend reversed course. The total number of 10-Q filings for 2021 is already at 18,679 — a 10.1 percent increase over all of 2020, with a few more weeks of the year still to come.
OK, but where are all those new 10-Q filings coming from? Calcbench investigated that too. We looked at the change in filers year over year by SIC code, to give us a sense of which industries are seeing lots of publicly traded firms coming or going in any given year.
Figure 2, below, shows the 10 SIC codes with the largest increases from 2020 to 2021.
As you can see, the number of SPACs filing 10-Qs soared this year, far ahead of any other type of business. (The SIC codes with the biggest declines included oil & gas, down 13 firms; electric power generation and distribution, down 11; and industrial inorganic chemicals, also down 11.)
Here’s where it gets really interesting. If you do the math, those additional 438 SPACs translate into an additional 1,752 10-Q filings per year — which is more than the entire increase we’ve seen in 2021 filings, and then some.
In other words, that long-running decline in filings to the SEC has reversed, and SPACs are driving it all.
Calcbench has written quite a bit about SPACs this year, including an in-depth series looking at how many SPACs exist, how much money they have at their disposal for acquisitions, and numerous reporting issues unique to this breed of holding company.
Considering all the action in this sector, clearly it will be one to keep watching closely in 2022 and beyond.
Good news for financial analysts who missed our webinar last week on supply chain disruptions: we have now posted the entire discussion to the Calcbench YouTube channel, so that you can watch it at your leisure.
The webinar is one hour long and features the entire Calcbench gang, both taking a macro-economic look at supply chain pressures and offering specific examples of how you can find such data yourself in various pockets of the Calcbench data archive.
The complete agenda is as follows:
We also include a short video at the end celebrating the 10-year anniversary of Calcbench, which just happened a few weeks ago — but really, we’re all about the data.
Anyway, the webinar is on our YouTube channel, or you can watch in the player below. Enjoy!
Today we continue our look at supply chain disruptions (one might say we have a steady supply of posts on the subject…) by examining the disclosures of trucking company J.B. Hunt Transport Services ($JBHT). After all, shouldn’t a company in the business of moving stuff around be making a killing these days?
At first glance of the income statement, that hypothesis would seem correct. Revenue in third-quarter 2021 was up 27.2 percent from the year-ago period, including “fuel surcharge revenues” that soared from $176.5 million last year to $330.9 million today.
Figure 1, below, shows that 10-Q comparison. Yes, operating expenses rose by 25 percent — but operating income, pre-tax earnings, and net income rose by even larger numbers. So in that world, do higher prices really matter that much?
Upon closer inspection of Hunt’s disclosures, maybe they do. We also peeked at the company’s balance sheet, and found that net accounts receivables have risen 28.6 percent over the last 12 months; from $1.121 billion in Q3 2020, to $1.442 billion today. See Figure 2, below.
A growing accounts receivable line can indicate that customers are taking longer to pay their bills, or that some customers aren’t likely to pay them at all. So we used our handy Trace feature to see what Hunt disclosed in the footnotes about its growing A/R line:
The adequacy of our allowance is reviewed quarterly. Balances are charged against the allowance when it is determined the receivable will not be recovered. The allowance for uncollectible accounts for our trade accounts receivable was $17.0 million at September 30, 2021 and $18.4 million at December 31, 2020. During the three and nine months ended September 30, 2021, the allowance for uncollectible accounts increased by $1.1 million and $2.5 million, respectively, and was reduced $0.3 million and $3.9 million, respectively, by write-offs.
Also keep an eye on prepaid expenses, which have been falling quarter after quarter for all of 2021 so far. Companies sometimes cut back on prepaid expenses to conserve cash. We don’t know whether that’s the case here, but the question is worth asking next time you’re on a J.B. Hunt earnings call.
You can also glean more insight about Hunt’s operations from its earnings statement, which contains quite a bit of other, non-GAAP information. We pulled up the earnings statement on our Interactive Disclosure page, and scrolled down to the list of “Operating Statistics by Segment.” There, Hunt shared numerous details about the size of its trucking fleet, number of hauls, and revenue per haul. Take a look:
We can see that the number of “intermodal” loads is down 6 percent, but revenue per load is up a whopping 24 percent. Why? If you read the narrative disclosures, you get even more detail:
Overall intermodal volumes declined 6% versus the same period in 2020. Eastern network loads declined 2%, while transcontinental loads declined 9% compared to the third quarter 2020. Demand for intermodal capacity remains strong, however, volumes in the quarter were negatively impacted by a continuation of rail restrictions across the network and elevated detention of trailing equipment at customer facilities. We believe labor shortages across the industry in both rail and truck networks and at customer warehouses are at the core of the supply-chain fluidity challenges limiting our asset utilization and capacity.
In other words, labor shortages and infrastructure glitches are gumming up Hunt’s ability to move stuff around, but the company is making up that difference through higher rates to customers and fuel surcharges.
So even at a business that should be doing great in this time of supply chain stress, there’s plenty to ask about and consider. Thankfully the one raw material that is in abundant supply right now is data.
Supply chain constraints, inflation, and the cost of materials have all been on the minds of many firms and financial analysts lately. Calcbench is no exception, so during some spare time today we decided to map out the cost of revenue for large firms since the pandemic began at the start of last year.
We examined cost of revenue (also commonly known as cost of goods sold, or “COGS”) for more than 340 companies in the S&P 500 that have reported COGS for the last seven quarters — that is, from the start of 2020 through Q3 2021.
Figure 1, below, shows the change in COGS for all 341 firms as a group. The total jumped 17.2 percent in the last seven quarters, from $1.07 trillion at the start of 2020 to $1.25 trillion today. Second quarter 2020 does show a dip to $944.2 billion, which makes sense considering a large portion of the world was in lockdown at that time. (The second decline in Q1 2021 might also be due to a spike in covid cases in the United States that period, too.)
Of course, collective numbers can mask the effect of certain outliers, so we also calculated the median change in COGS over the same seven quarters. Median COGS rose even more: 20.2 percent, from $1.07 billion to $1.28 billion. That’s in Figure 2, below; and again we see the same dip during lockdown.
And since we’re always nosy here at Calcbench, we also calculated the change in COGS for each firm in our sample, and then ranked them from biggest increase to smallest. Table 1, below, shows the 10 firms with the largest increase in cost of revenue for the last seven quarters.
Some of the increases make sense. AbbVie ($ABBV), for example, manufactures rapid covid testing kits, so its increased costs presumably are driven by high demand for those kits. On the other hand, we also have the likes of toy manufacturer Hasbro ($HAS). As much as we’d like to speculate on that situation, first we have to run to the store and get our kids’ holiday presents before you all beat us to it.
You can conduct your own research on cost of goods sold using our Multi-Company page and entering “cost of revenue” or “cost of goods” in the standardized search metrics field on the left side of the screen. When you find something interesting, you can then bounce over to our Interactive Disclosure page to see what the company might be saying about the issue in its footnotes, Management Discussion & Analysis, or other disclosures.
And if you’d like to learn more about supply chain issues and how Calcbench can help you research them, join us at 4 PM ET on Tuesday, Nov. 16 for a free webinar exploring what firms are reporting about the issue and how to study the data.
We’re coming up to our 10-year anniversary at Calcbench, so we wanted to take a look at corporate M&A activity over the last decade. Although Calcbench has the data for all corporate acquisitions, we decided to focus on the S&P 500, since these firms typically dominate the corporate acquisition market.
We start by examining the number of acquisitions as well as the total price paid for those targets. As you can see from Figure 1, below, the number of acquisitions has been tapering downward since 2016. On the other hand, we see a jump in the amount paid for those acquisitions starting in 2015 (orange line, with right-side vertical axis measured in billions). Those numbers have somewhat declined in recent years, but not nearly as much as the drop in number of deals. Purchase prices in 2020, for example, were still higher than the pop that happened five years earlier.
Well, if the number of acquisitions goes down, but the total amount paid for these acquisitions stays high, that must mean that the average price has gone up. So we examined that.
Figure 2, below, shows the mean and median purchase price. As you can see, both the mean and median purchase price have increased. The median price actually doubled from 2014 to 2021! The implication: although S&P 500 companies are buying fewer companies, on average they are paying more for each one.
We were also interested to see what portion of the purchase price is assigned to goodwill. The chart above shows that about 60 percent of the purchase price is typically allocated to goodwill. This level seems to be relatively constant over the last decade.
Want more? Calcbench has all corporate acquisition activity, as well as purchase price allocation data, in our business combination portal (available for Professional level users). Want to know more about goodwill? Our latest webinar and blog are great sources of information.
Calcbench has been paying extra attention lately to supply chain disruptions among large corporate filers, and perhaps there is no better example of the challenge these days than what Apple ($AAPL) had to say about supply chain risks in its annual report from last week.
You might have seen news that on its earnings call, Apple executives admitted that “supply chain constraints” cost the company about $6 billion in revenue for its Q4 2021. Those constraints included microchip shortages plaguing, well, everyone; and operational disruptions at manufacturing facilities in Southeast Asia, where countries have been battling the Delta variant.
Perhaps even more alarming: CFO Luca Maestri said he expects supply chain constraints to be even larger in this quarter, even as revenue continues to hit all-time highs. (Revenue in the September quarter was $83.4 billion, up 29 percent year over year.)
So where would an analyst start with Calcbench to sift through Apple’s disclosures?
We began by cracking open our Interactive Disclosure viewer to see what Apple had to say about supply chain issues. The company said a lot. Take this example from the Risk Factors disclosure:
During the course of the pandemic, certain of the company’s component suppliers and manufacturing and logistical service providers have experienced disruptions, resulting in supply shortages that affected sales worldwide, and similar disruptions could occur in the future … The company’s global supply chain is large and complex and a majority of the company’s supplier facilities, including manufacturing and assembly sites, are located outside the U.S. As a result, the company’s operations and performance depend significantly on global and regional economic conditions.
You can use our “Compare Text” feature to see what new narrative disclosures have been added compared to the previous period’s disclosures. We did that, and found a lot of green text — meaning, new material that Apple had added since the 2020 annual report. See Figure 1, below.
All the green copy in the center column is new material, and it all addresses supply chain risks.
Before we get carried away, however: if one scrolls further down that center column, you’d also find plenty of red text, which indicates material removed from the prior period’s report. In reality, Apple simply reorganized most of its supply chain disclosures to give risks related to Covid-19 and to macro-economic trends more prominence.
We also examined Apple’s Q4 numbers, which Calcbench automatically calculates in our Company-in-Detail page. Revenue rose from $64.7 billion in the year-ago period to $83.4 billion this year, an increase of 29 percent. Cost of revenue, meanwhile, only rose 20.4 percent: from $40 billion one year ago, to $48.2 billion now. Figure 2, below, shows the comparison for the whole income statement.
Overall those line items look decent, although we’re comparing Q4 2021 figures to the pandemic-battered year of 2020. Perhaps the question for analysts is more about the even better numbers Apple might have achieved, absent supply chain disruptions.
One might also conduct further research to understand are these supply chain constraints more about raw materials and components that Apple doesn’t have; or workforce disruptions due to delta variant outbreaks keeping facilities closed? Calcbench can’t answer those questions for you, but we do have the data to help you understand which questions are the most useful to ask, and get answered.
An interview with Andy Schmidt, Associate Professor of Accounting at North Carolina State University. NCSU recently upgraded to a Professional subscription.
What intrigued you about Calcbench?
I was interested in ways to democratize financial information - to give access to hard to find information to students and professors. I thought products built on top of XBRL could do that.
XBRL was very inaccessible at first. It required coding and managing taxonomies that were a heavy lift for most accountants and accounting students. Calcbench not only makes XBRL accessible for teaching and research, but they also use XBRL to make accounting data more accessible to users.
How do you use Calcbench in the classroom?
I teach a senior-level capstone course on business valuation - students build spreadsheets and apply different valuation and analysis models. In the past, they would have to go to many sources to access the information needed - from Yahoo! Finance to a companies’ investor relations page to get profile information and financials. Calcbench is a one-stop shop for accounting-based valuation and analysis. You can quickly download entire financial statements or footnotes in formatted spreadsheets or use the XBRL functions to build your own analysis templates in Excel (e.g. DuPont analysis, Piotroski F-scores, and Altman Z-scores). Once you have a template built, you just type in a ticker symbol and date and Boom! - there is the data, ready for analysis.
What Calcbench features do you use in your research?
I am a self-proclaimed nerd and like to read accounting footnotes. I like to sort out boilerplate language from the disclosures that really say something about a company’s performance. For me, simple tools like comparing disclosures across time are valuable. I haven’t seen this type of functionality in other XBRL applications.
The ability to dig deep into footnotes is important to my research. I have recently been working on a project related to the deferred tax asset valuation allowance. This data is in the tax footnote and is time-consuming to collect by hand.
How much time do you save with Calcbench?
I have a disability from a spinal cord injury that has affected the use of my arms and hands. That means it takes me even longer to hunt and peck for information that is not collected by other financial data providers (e.g., financial statement footnote data). In the past it could take me weeks to months to hand-collect data for research. Calcbench reduces this time significantly, to say the least.
What skills do accounting students need to learn these days?
Well, I think accounting students still need to learn accounting - the structure and taxonomy of accounting data. Most accounting classes teach students a taxonomy as defined by GAAP. For example, students learn the definition of an account, how accountants typically value the account, potential different ways to arrive at the account value, and how to report the account value in the financial statements or footnotes. In addition to preparing accounting data, we are now asking students to become better users of accounting data - to analyze the data to make decisions. From an analysis standpoint, students should have an advanced understanding of spreadsheet programs like Excel and a semester or two of statistics, covering topics like hypothesis testing, correlation and regression analysis, and forecasting.
Any parting words for our readers?
I think that students do not spend enough time with actual financial statements, which impairs their ability to (1) better connect how transactions affect the financial statements and (2) assess the implications of the transactions for a variety of outcomes (e.g., performance). To help students make those connections, I think professors in every accounting class could use Calcbench to quickly deploy examples using current and prior financial statements and footnotes.
By Jason Apollo Voss
One way that a company can create the appearance of profitability through aggressive accounting is sleight of hand with how it capitalizes its expenses.
Capitalization of an expense, rightfully booked now, delays recognition until later; that improves net income right now. But wait, there’s more! Capitalization also puts an asset on the balance sheet that shouldn’t be there; making an aggressive firm look more financially sound, too.
So the capitalization of expenses is potentially both an offense against investors and a con. As with many accounting issues, however, judging a business’ capitalization practices can be tricky. It requires just that: judgment.
The key question is when should costs be capitalized and when they shouldn’t. Fortunately, accounting standard-setters globally have provided some clarity with their well known “Matching Principle.” If you’re not familiar with this bedrock accounting concept, here is the definition from Wikipedia:
“[T]he matching principle instructs that an expense should be reported in the same period in which the corresponding revenue is earned, regardless of when the transfer of cash occurs. By recognizing costs in the period they are incurred, a business can see how much money was spent to generate revenue, reducing ‘noise’ from timing mismatch between when costs are incurred and when revenue is realized.”
Within this definition are two fundamental ideas:
If you understand these two fundamental ideas, then you have a powerful evaluative mechanism for judging the way a business capitalizes costs — and whether this provides an accurate record of their profitability. Armed with these concepts, it’s also obvious that the problem of mis-capitalization of expenses is almost always a violation of the second fundamental idea: keeping the evaluative time horizon of both benefits and costs is the same.
In short, companies use capitalization to decouple expenses from their matching revenues by creating a separate, longer time horizon for recognizing expenses. Recognizing expenses over a longer time horizon makes each period’s costs look lower. Consequently, in the short-run, profits look higher, as do assets.
Imagine you are a startup SaaS business struggling to demonstrate profitability to investors. Also imagine that your premium software has a high customer acquisition cost, but you’re confident that in the fullness of time you'll recoup that cost of bringing on board a new loyal customer.
Your belief is strong because you know that your software is unique and is vital for your customers to improve their businesses; and in turn you anticipate this will create customer loyalty. So while costs are high in the short run, you’re likely to have high profitability in the long run.
From an accounting perspective, you recognize revenues as soon as your customers sign their annual contract. Your research shows that your customers (a) have no substitute for your product; and (b) you likely have a three-year technological advantage over competitors. Therefore, you capitalize your customer acquisition costs over three years, confident that until a viable competitor for your product emerges, that you can count on good repeat business. You believe that you have provided the proper accounting for your situation.
Wrong! While it may seem that you are properly matching expenses to revenues by capitalizing your customer acquisition costs, you aren’t. Here’s why.
In a well-known case from the 1990s, America Online (AOL) was conducting its accounting in almost exactly the way I described above. In AOL’s case, the company was mailing nearly every household in the United States a CD-ROM with its software on it, for free. Interested customers would place the CD in their computers and then sign up for AOL. (If you are over 40, you remember exactly what we mean.)
AOL capitalized these customer acquisition costs because its research showed that customers were likely to be loyal and stick around long enough for collected revenues to be matched to the cost of acquiring the customers.
Well, the SEC had a different opinion. It likened these expenses to advertising costs — which are expensed in the same period in which they are incurred.
There is, however, an exception, and — you guessed correctly! — it requires judgment.
The exception is that if revenues are historically predictable, then the expense of customer acquisition may be capitalized over the length of a typical contract.
Unfortunately for AOL, the SEC argued that it was too new a company and that its future revenues were not predictable enough to qualify for the exception. Ruling in this way had a massive effect on AOL’s results and moved it from strongly profitable to a very large loss. Ouch!
For what it’s worth, I think the SEC had the correct assessment of AOL. As a research analyst at the time, anecdotally I knew from my experience (and those of friends and family), that what they really wanted from AOL was access to the Internet. In other words, as soon as a company could provide direct access to the web, and circumvent the AOL platform, customers would follow … and they did.
This underlines a point I’ve made in previous columns. As analysts, we must always understand the underlying real world economics of the businesses in which we invest. Then we must ask ourselves whether the accounting policies and choices of a company fairly represent the underlying economics. Here are some tips for evaluating proper cost capitalization by a business.
While it may seem that whether an expense should be capitalized is a bit tricky based on my AOL example, in most cases the analysis is straightforward. In fact, most of the large expenses incurred by businesses have well-documented, generally accepted accounting principles. For example:
Guidelines for Expense Capitalization Judgment
Any assessment should begin by reviewing the company’s approach to capitalization as revealed in the Accounting Policies section of its annual report. (Look for Item 8, just past the financial statements.) With these in mind, here are some guidelines for judging whether a company’s expense capitalization is legitimate.
In conclusion, companies have incentives to report higher profits and assets now. One way they can improve both is to capitalize expenses that should not be. This capitalization con can lead to a distorted understanding of business performance and lead investors astray. By understanding the Matching Principle, you can decipher the correct analysis of a company’s expense capitalization, and avoid a burn by management.
This is a monthly column written by Jason Apollo Voss — investment manager, financial analyst, and these days CEO of Deception and Truth Analysis, a financial analytics firm. You can find his previous columns on the Calcbench blog archives, usually running the first week of every month.
What can you do? Here’s what you can do. Calculate a Net Income margin in real time. This morning, Friday October 22, 2021 at 9:25 EDT, we retrieved all S&P500 firms that had reported this period. There are 103 firms in our sample as of that time.
Net Income for those firms was 129 Billion. Revenue was 790 Billion for a margin of 16.3%
Last year for those same firms, the number are 75.8 B Non Net Income and 698B in revenues for a margin of 10.9%.
Get the Excel Add in and have a go yourself!
Netflix reported its latest quarterly report last night after the market close. As the investing world read the news (and maybe watched Squid Games), here at Calcbench, we fired up our engines. At 4:03pm, we had the data in house!
A few minutes later, we had modeled this spreadsheet. (Please note that the formulas will only work with an active Calcbench subscription. That said, this data will auto-poulate for next quarter with a quick copy paste that you could do right now!)
Some takeaways. Here are the subscribers by region for the annual periods until 2020 and the subsequent quarters through Q3 2021.
Last three quarters of subscriber growth by region:
Revenues by region are below. In this chart, we combined annual and quarterly. We did something simple and scaled the quarterly by multiplying by 4 to make the charts look good, but feel free to do your own thing.
There was no Plan A. There was also no Plan B. Calcbench started out as a necessity enterprise.
After working as financial analysts for a number of years, co-founders Pranav Ghai and Alex Rapp, former college roommates, found themselves out of a job during the Great Recession. They wanted something meaningful to keep them occupied and employed. With a little time on their hands, Pranav and Alex developed Calcbench. The year was 2011.
Ten years later, Calcbench’s financial data platform is integrated into the workflow of companies and organizations that rely on corporate filings, from enforcement agencies, to auditing firms, to corporations and asset management shops. Calcbench is used by U.S-based and global companies for financial analysis, and by universities around the world for research and as a teaching aid. Today Calcbench clients can access data from two million filings, from 12,000+ entities, going back to 2009.
For how it all began to the company’s current success, read on. It’s a real-life journey of a startup that has endured and prevailed over a decade and the many people involved. With deep gratitude to all those who have helped us along the way, we share our story.
An Idea Over Coffee
In 2011, in a fortuitous New York City encounter, Calcbench co-founder and CEO Pranav Ghai ran into Campbell Pryde, now CEO and President of XBRL US, at a coffee shop.
Colleagues from their days at Morgan Stanley, Ghai and Pryde talked about XBRL. Campbell invited Pranav and his friends to try XBRL US data to see how they could commercialize it. A week after that impromptu coffee-shop meeting, Pranav and Alex Rapp, co-founder and CTO, developed a prototype that could read XBRL-tagged financial data from corporate filings. Encouraged by this early success and after a couple of iterations of the prototype, Alex and Pranav sat at a bar, drank a beer, and hatched a new company called Calcbench.
Pictured above: Alex and Pranav at their first board meeting
Developing the prototype whet the duo’s appetite to enter an XBRL contest — which they won, giving them $20,000 to get their business off the ground. In 2012 Calcbench was also a finalist in the Mass Challenge. That same year, Calcbench was invited to speak at the AICPA’s annual conference and given a seat at a Treasury department jam.
Pictured above: Calcbench’s first logo
Through these early events, Pranav and Alex met some of Calcbench’s first users, including Jack Ciesielski and Paul Chaney (who still use the platform today).
Yep, It’s Real
Though the promise of the data and interest from potential users kept them engaged, during their first couple of years in business, Pranav and Alex were unsure whether they were “all in.” They tried consulting for unrelated companies, but after a couple of engagements, the two co-founders decided to dedicate time to Calcbench in earnest. Fortunately, their wives were supportive and had health insurance.
Others chipped in to help them stay the course. Friends at the Polaris Ventures incubator gave them free space. Abby Fitchner, a start-up evangelist, gave them free cloud computing through Microsoft’s BizSpark program. Investors gave them the foundational money to keep them afloat and to grow. The year was 2013. Pranav and Alex hired their first Calcbench “employee,” Ariel Markelevich, an accounting professor whom they knew through XBRL US. That same year, Calcbench landed its first clients.
Once they received capital and had viable clients, it seemed like there was a clear and linear path to success. But “build it and they will come” wasn’t exactly how it worked.
Some corporate finance professionals, looking to get competitive data, found Calcbench through due diligence. Some university professors, looking to make data wrangling easier, stumbled upon Calcbench at XBRL conferences. Some individual investors looking for a cheaper financial data provider switched to Calcbench. Mostly, however, clients were small and wanted one-off information such as pension and tax data not readily available from some of the larger, cookie-cutter financial data providers.
Calcbench was not profitable for a few years and there were questions about the feasibility of the business. Can the business sustain? Is the data clean? Will XBRL become mainstream? Can others replicate Calcbench?
It wasn’t until 2014 when some of the early adopters found homes for the platform that the business really took off. One of those early adopters was Dave Zion. At the time, Dave was looking at corporate procedures and brought Calcbench into Credit Suisse. Another early adopter came from the Public Company Accounting Oversight Board. Our contact had a stack of 10-Ks on his desk and was looking for product warranty information. He thought Calcbench could help him save weeks searching for the information. He was right, but was only able to bring in Calcbench after an RFP win and a budget sequester ended. Other early adopters included Susan Yount, who brought Calcbench into Workiva. 2014 was the same year that Calcbench hired senior software engineer and financial analyst, Andrew Kittredge.
In 2015, Calcbench started to scale. Calcbench was notified that the SEC had an RFP for a financial data provider two weeks before the due date. After round-the-clock work to complete the RFP, Calcbench won the contract, a game changer for the company.
From then on, Pranav and Alex joined numerous XBRL and data quality committees. They became go-to experts. Calcbench data and insights could be found in the Wall Street Journal, Washington Post, Fortune, Marketwatch and top academic publications. Hundreds of blog posts were created, read by thousands of financial analysts.
New features and functionality arrived, such as data from the non-XBRL portions of corporate filings, tying numbers to text, normalizing footnote data, and of course, earnings press releases. This opened the door to new customers like the Financial Accounting Standards Board, some of the largest asset management firms in the world, as well as prestigious universities.
The Marathon Continues
A lot of spaghetti has been thrown against the wall over the years. Some ideas worked. Some did not. Regardless, there were a lot of sleepless nights, chaos, and uncertainty. Eventually it all became fun.
XBRL is messy; if it were clean, more people would build off the data. This past decade, Pranav and Alex have seen numerous companies try to replicate Calcbench’s success, but few have been able to do it. It’s been a long and winding road, but this adventure has been an exciting one for Calcbench, its co-founders, its team, and its clients. We are grateful to all of you who have taken this journey with us and for those who will join us over the next decade. Many thanks.
The Calcbench Team
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