Thursday, June 23, 2022

Shipping giant Fedex Corp. ($FDX) filed its fiscal 2022 earnings release this week, and we were intrigued because Fedex’s operations can be a bellwether for all sorts of economic indicators, from inflation to supply chain issues to overall business activity.

Sure enough, the company delivered a few insights worth unpacking.

First (and perhaps most interesting) were Fedex’s segment disclosures about fuel costs and how those costs have affected ground shipping. Fedex provides a detailed breakdown of revenue by operating segment and of its operating expenses, so take a look at Figure 1, below.

Do you see it? Fuel costs — fith line item in the Operating Expense category. Fuel costs for the spring quarter of 2022 soared 88 percent from the year-earlier period: $936 million to $1.76 billion. No other operating expense rose anywhere near as much. Ouch.

Those costs hammered Fedex’s ground segment so much that the company implemented a fuel surcharge, which did offset some of the pressure. Still, operating income for the Fedex ground segment fell by 23 percent, even as overall operating income rose 7 percent.

Fedex attributed that decline to higher self-insurance accruals — but also to increased purchased transportation and wage rates. So there’s our second interesting item: Fedex is battling inflation from its service providers and its own labor costs.

As you can see from Figure 1, purchased transportation costs rose 6 percent in the most recent quarter compared to the year-earlier period, while labor costs were mostly flat. But for the entire year, Fedex actually saw purchasing costs rise 11 percent, while salary and employee benefits rose 6 percent. (Fuel costs rose 77 percent for the whole year.)

Package Numbers

Fedex also reports some interesting non-financial statistics about package delivery. See Figure 2, below.

As you can see, Fedex is shipping fewer packages (11 percent fewer), but those packages are generating more revenue ($24.64 per package compared to $20.51 one year ago, an increase of 20 percent).

We at Calcbench aren’t entirely sure what that means, but then, we’re not analysts covering the shipping industry. We do know, however, that the data is there, and that Calcbench subscribers can easily find it, extract it, and model it; so that you can ask sharper questions when you’re on the next earnings call.

Wednesday, June 22, 2022

By Olga Usvyatsky

Marketwatch recently reported that several large pharmaceutical companies — including Pfizer (PFE), Eli Lilly (LLY), Bristol Myers Squibb (BMY), and Merck (MRK) — all recently changed how they calculate non-GAAP numbers.

Starting from first-quarter 2022, the companies no longer exclude expenses related to acquired in-process research and development (IPR&D) when calculating their non-GAAP metrics. The change in non-GAAP accounting was interesting because it was material, industry-wide and prompted by SEC comments.

We decided to follow Marketwatch’s lead and dive deeper into non-GAAP IPR&D adjustments. In addition to the Big Pharma firms identified by Marketwatch, at least three other large pharmaceutical companies also modified their non-GAAP presentations to remove IPR&D adjustments: Biogen ($BIIB), Regeneron Pharmaceutical ($REGN), and AbbVie ($ABBV).

Non-GAAP numbers can dramatically increase reported net income. According to Calcbench’s study of 123 companies, the average adjusted net income exceeded GAAP net income by about $460 million, or about 14 percent. R&D-related expenses appear to be one of the largest reconciling items for non-GAAP, totaling more than $6 billion and explaining 6.3 percent of the $85.9 billion difference between GAAP and non-GAAP net income numbers.

For the four companies identified by Marketwatch, the difference was even more significant. Adjusted net income was about $64 billion, more than 30 percent larger than GAAP net income of only $47.6 billion. Research and development adjustments totaled about $5 billion, explaining roughly 30 percent of the difference between GAAP and non-GAAP values.

In first-quarter 2022, non-GAAP numbers exceeded their GAAP equivalents by about $6 billion, or almost 40 percent. A quick look at the Q1 earnings releases confirmed that Q1 2022 R&D-related non-GAAP adjustments were material to three out of four companies:

  • For Pfizer, the EPS impact of including IPR&D expenses was $0.05, against GAAP-reported EPS of $1.37;
  • For Eli Lilly, the impact was $0.15, against GAAP-reported EPS of $2.10;
  • For Bristol Myers Squibb, the impact was $0.10, against GAAP-reported EPS of $0.59.

Non-GAAP measurements are not defined in GAAP, and there is no uniform rule that prescribes how changes in the presentation should be reported. Although new non-GAAP methodology did not affect Merck’s (MRK) first-quarter EPS, the company recast the previously reported 2021 non-GAAP balances for comparability purposes.

So why did large pharma players choose to make a change that requires substantial explaining in earnings releases and recasting previously reported numbers? According to Eli Lilly’s April 14 8-K filing, the change was prompted by SEC Division of Corporation Finance comments:

“Beginning with the press release announcing its financial results for the quarter ended March 31, 2022 (the “Earnings Release”), Eli Lilly and Company (the “Company”) will not include adjustments for upfront charges and development milestones related to in-process research and development (“IPR&D”) projects acquired in a transaction other than a business combination in presentations of its non-GAAP financial measures. The Company is making these changes to its presentation of non-GAAP financial measures following guidance from the U.S. Securities and Exchange Commission (the “SEC”).”

The primary objection of the SEC appeared to be the recurring nature of the IPR&D expenses. Question 100.01 of Regulation G states that a non-GAAP metric could be misleading if it excludes “normal, recurring, cash operating expenses necessary to operate a registrant’s business.”

Below is an excerpt from SEC comments to Eli Lilly:

"For each type of acquired IPR&D transaction (i.e., asset acquisitions, license agreements, etc.), explain to us why you believe it is appropriate to include non-GAAP adjustments for these upfront payments given that these expenditures appear to be normal, recurring, cash operating expenses necessary to operate your business. Refer to Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations.”

While reading SEC comment letters and companies’ earnings releases, we noticed several interesting disclosures.

First, one of the justifications for including IPR&D adjustments was comparability among companies that report under GAAP and under IFRS. We do not know whether divergence between GAAP and IFRS is a common explanation for the usefulness of the non-GAAP metrics, but the disclosure looked interesting enough to mention. Under GAAP, IPR&D acquired through asset acquisition is expensed if it has no alternative future use. Based on the comment letter, 14 out of 17 projects for which Eli Lilly recorded IPR&D charges were asset acquisitions.

From the Eli Lilly’s response to SEC comments:

“Some of our peers report their financial results in accordance with International Financial Reporting Standards (IFRS). Under IFRS, an entity is permitted to capitalize the upfront charges related to acquired IPR&D in an asset acquisition. Our adjustment for the “buy-in” investment related to acquired IPR&D as part of non-GAAP financial measures allows more comparability of financial results among our peers, including companies reporting under IFRS.”

Additionally, while the pharmaceutical companies above discontinued IPR&D exclusions in their earnings releases, Regulation G does not apply to metrics used for compensation purposes. At least one of the companies (namely, Pfizer) noted that the company plans to continue excluding IPR&D in setting executive compensation targets:

“Beginning in the first quarter of 2022, we no longer exclude any expenses for acquired IPR&D from our non-GAAP Adjusted results but we continue to exclude certain of these expenses for our financial results for annual incentive compensation purposes.”

In other words, while Adjusted EPS in an 8-K filing and an Adjusted EPS in the proxy statement might have a similar labeling, the values of the two non-GAAP numbers could be different. To make it clear, companies are allowed to set compensation practices of their choice. Using different metrics to explain operational results and to set compensation goals is permissible. A practical takeaway for investors is to be mindful of the differences when analyzing (and comparing) two adjusted numbers.

Generally (and without any relationship to the pharma industry and IPR&D adjustments), metrics used for compensation purposes could be difficult to understand because unlike the metrics presented in 8-K filings, there is no requirement to reconcile them to the most comparable GAAP number. As stated in a recent Bloomberg article:

“One improvement many investors want: Requiring companies to detail precisely how they calculate the adjusted, non-GAAP metrics they use for compensation purposes.”

Going back to a recent change in non-GAAP IPR&D accounting, the IPR&D expenses appear to be material, and a distinction between regular and acquired R&D expenses is arguably useful in understanding results of operations of pharma companies. A recent memo from BDO suggested what companies can do to inform investors without violating Regulation G. Although the SEC objected to presentation of the non-GAAP IPR&D adjustments, companies can still present IPR&D as a stand-alone item or as a separate line on the face of the income statement.

To summarize, investors may need to read pharma sector earnings releases carefully in the next few quarters to make sure that non-GAAP numbers are comparable. Although many large pharma companies already changed their non-GAAP accounting to follow SEC guidance, others may still exclude IPR&D expenses from their adjusted numbers, or transition to the new methodology gradually over the next few quarters.

Olga Usvyatsky is a PhD student in accounting at Boston College and occasional contributor to the Calcbench Blog. She can be reached at

On Feb. 2 of this year, Pfizer ($PFE) filed an 8-K earnings release.  Tucked away on Page 28 of the filing, the pharmaceutical giant had this to say:

“Adjusted income and its components and Adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, are limited in their usefulness to investors. Because of their non-standardized definitions, they may not be comparable to the calculation of similar measures of other companies” (emphasis added).

While that statement might seem startling at first glance, it is indeed true — and not as startling as one might think. By definition, non-GAAP measures (frequently referred to as “adjusted”) are not standardized. When companies report, say, adjusted net income, the adjustments each company makes can be quite different from the adjustments that other companies make. Calcbench recently examined the types and magnitude of adjustments companies make in a special report you can find on our Research page.

What might be less known is that there are subtleties to these adjustments. For example, as the Calcbench report mentioned, the most common adjustment to net income is excluding the amortization of intangible assets. For pharma companies in particular, excluding the amortization of intangible assets can significantly increase adjusted net income.

Indeed, most pharma companies exclude the amortization of acquired intangible assets in their non-GAAP calculations of Net Income. This list includes such heavyweights as Biogen ($BIIB) and Bristol Myers Squibb ($BMY). It also includes Pfizer, which excluded the amortization of intangible assets as part of purchase accounting (M&A activity) from adjusted net income.

On Page 3 of its subsequent earnings press release later this spring, for Q1 of 2022, Pfizer wrote:

“Also in the first quarter of 2022, Pfizer implemented a change in policy to exclude all amortization of intangibles from Adjusted income, which favorably impacted Adjusted diluted EPS by $0.01 in first-quarter 2022 and by $0.02 in first-quarter 2021. Prior period amounts have been revised to conform to the current period presentation” (emphasis added).

Pfizer announced this accounting policy change in Q4 2021. At the time, the company mentioned that the guidance for full-year 2022 —

“Includes an estimated benefit of approximately $0.06 on Adjusted diluted EPS resulting from a change in policy for intangible amortization expense to begin excluding all amortization of intangibles from Adjusted income) compared to excluding only amortization of intangibles related to large mergers or acquisitions under the prior methodology. This change was effective beginning in the first quarter of 2022 and will require recasting prior period amounts to conform to the new policy” (emphasis added).

As a result, when using adjusted or non-GAAP measures, investors not only need to examine the adjustments made to GAAP net income and study the reconciliation of the two. They also need to examine the details of what is included in those adjustments!

For example, when a company excludes amortization of intangible assets, you need to pay attention to exactly which intangible assets are included in that calculation. Failing to do so might leave you comparing apples to oranges both across companies and over time. That makes for an unappetizing meal.

For the record, we examined both Biogen and Bristol Myers Squibb for similar language and found nothing to indicate that they were following Pfizer’s new adopted policy.

(’Thank you to Olga Usvyatsky, accounting PhD student at Boston College and friend of Calcbench, for giving us the idea to examine Pfizer’s disclosures. Usvyatsky herself will have a guest post taking a deeper dive into this issue next week.)

Thursday, June 9, 2022

Some great stuff from the Calcbench research team this week about non-GAAP adjustments to net income: we recruited a team of accounting students from Suffolk University to help us understand the most common and most significant adjustments that large companies made in 2021.

The students (“winterns” Suffolk University calls them) examined the 2021 earnings reports of 123 companies randomly selected from the S&P 500. Under the guidance of greybeards here at Calcbench, they measured the non-GAAP adjustments to net income each company made, and then studied how those adjustments compared to the plain ol’ GAAP net income that the companies also reported.

You can find our complete report and accompanying slide deck on the Calcbench research page. The main findings are as follows:

  • Adjusted (non-GAAP) net income was higher than GAAP net income by an average of $460 million per company, or about 14 percent of GAAP net income. 
  • The students documented a total of 718 individual reconciling items from the sample, with a total value of almost $86 billion and an average value of almost $120 million per item.
  • The single most common adjustment was gains or losses on investments (including pensions), which was cited 128 times; although the ever-popular hodgepodge of “Other” adjustments was cited 185 times.
  • The largest adjustment by dollar amount was amortization of intangibles, which accounted for $45.5 billion, or more than half of all non-GAAP adjustments.

In second place was stock-based compensation, which accounted for about 16 percent of the total adjustment ($13.8 billion).

Table 1, below, shows the dollar breakdown for each category of non-GAAP adjustment.

If all of this sounds familiar, that’s because Calcbench conducted a similar non-GAAP analysis one year ago. In that instance (without interns), we examined the 2020 earnings releases for 59 companies from the S&P 500 that had the largest differences of non-GAAP net income exceeding GAAP net income.

Our complete report and slide deck include much more data and detail, so if non-GAAP is your thing, we encourage you to read them both. We also thank Suffolk University and its troop of accounting winterns, who made this exercise possible! Photo below to capture their efforts for posterity.

Tuesday, June 7, 2022

This month Calcbench will be taking a deep dive into segment reporting, and how analysts can quickly find such data even when that information is buried away in the footnotes.

Our first example: the beauty segments for consumer product makers Procter & Gamble ($PG) and Unilever ($UN).

We chose these two companies specifically because they file their financial data according to different sets of accounting rules. P&G, headquartered in Ohio, files according to U.S. Generally Accepted Accounting Rules. Unilever, based in London, files according to International Financial Reporting Standards.

Historically, comparing GAAP and IFRS filers required a lot of manual searching and pasting into Excel. With Calcbench, however, those days are gone!

To perform our analysis, we used our Interactive Disclosures page, which allows users to search footnote disclosures by type. One such disclosure type is Segments. We first pulled up the Segment disclosure for Unilever, and then held our cursor over the number for the beauty segment. That allows us to export previous values for that disclosure in Excel — meaning, we could quickly get a spreadsheet of Unilever’s revenue and operating profit, for its beauty segment, for the last several fiscal periods. See Figure 1, below.

Then we repeated that exercise with Procter & Gamble, exporting its beauty segment disclosures for the last few fiscal years. See Figure 2, below.

This entire exercise took us about two minutes. Then we took another 15 minutes to make the spreadsheet data look pretty, and we ended up with a comparison of operating income and operating margin specifically for the companies’ beauty segments, even though the companies file according to different accounting standards.

That’s the power of XBRL-tagged data, which is the technology Calcbench uses to manage our databases. So whatever segments you’re hoping to find, we have it somewhere, and you can pull it together with just a few keystrokes.

So there we were the other day, sitting around Calcbench headquarters and talking about goodwill assets, when someone asked, “What was the last really big impairment we’ve seen?”

One of the research assistants did a quick search, and we found it: Teladoc Health ($TDOC), a telehealth medicine company based in upstate New York, which declared a $6.6 billion (yes, with a “b”) impairment just a few weeks ago!

Any impairment north of $1 billion is usually a big deal. We wondered:  what happened there, and what might it tell us about other firms and market conditions these days?

We can begin with the numbers. That $6.6 billion impairment was 45.5 percent of Teladoc’s total goodwill assets, which stood at $14.5 billion at the end of 2021. Moreover, goodwill assets accounted for nearly 82 percent of Teladoc’s total assets at the end of 2021. Meaning, that $6.6 billion impairment reduced total assets on the balance sheet by (ooof) nearly 40 percent. Figure 1, below, shows the comparison from Q4 2021 to Q1 2022. The goodwill line is high-lighted in gray.

OK, that’s gotta hurt — but why, exactly, did Teladoc take such a large impairment?

As always, the answer could be found in the footnotes. Teladoc gave a clear description of the cause and an impressively fulsome description of how it performed its impairment calculations.

First, the cause: sustained decreases in share price. Like so many other firms, Teladoc saw sharp upward appreciation in the early days of the pandemic, rising from $83 per share at the start of 2020 to a high of $292 by early 2021. Then came the downdraft, which pushed Teladoc all the way down to $66 by the end of Q1 2022 when it decided to test for impairment. These days Teladoc is even worse, around $34 per share. See Figure 2, below.

All firms must reassess the value of goodwill assets annually, and whenever some material, external event might warrant an additional assessment. A sharp drop in share price is one such event, and Figure 2 tells us that the need for an additional assessment was warranted.

Next, Teladoc described how it performed the reassessment. We’ll just excerpt the disclosure itself:

Consistent with prior goodwill impairment testing, the Company’s March 31, 2022, testing reflected a 75%/25% allocation between the income and market approaches. The company believes the 75% weighting to the income approach continues to be appropriate as it more directly reflects its future growth and profitability expectations. For the company’s March 31, 2022 impairment testing, as compared to its December 1, 2021 testing, the company reduced its estimated future cash flows used in the impairment assessment, including revenues, margin, and capital expenditures to reflect its best estimates at this time. The company also updated certain significant inputs into the valuation models including the discount rate which increased reflecting, in part, higher interest rates and market volatility, and the company reduced its revenue market multiples, reflecting declining valuations across the company’s selected peer group.

Then Teladoc even included a table to show its math:

You don’t see such detailed disclosure of a goodwill impairment too often. We thank Teladoc for its efforts, even if investors might not like the impairment itself too much.

Lessons for Others

The broader point here is that in today’s bear market, firms with a high proportion of total assets tied up in goodwill could be in for some nasty surprises; a prolonged downward trend in your share price could lead to impairments that ruin your balance sheet.

Indeed, back in 2020 (long before the pandemic and today’s bear market) Calcbench even devised a simple impairment sensitivity test, where you could assess how much an impairment of 1 percent, or 5 percent, or 10 percent would harm earnings per share.

Analysts might want to keep that test handy these days, so you can identify which firms have a lot of value tied up in goodwill, and better anticipate which ones might disclose an impairment that ruins EPS.

Tuesday, May 24, 2022

Calcbench is, of course, the most incisive and well-written blog you can find about financial data — but we do still like to see what others out there are saying. So when we saw an item on ZeroHedge this weekend predicting that inflation in the retail sector is about to end, we were intrigued.

The gist of the post is that retailers cut their orders for goods sharply at the start of the pandemic, causing manufacturers and wholesalers to cut back on production. Then as consumer demand returned in 2021, retailers were caught flat-footed; that led to the inflation we see today. ZeroHedge calls all this “the bullwhip effect.”

Now, ZeroHedge argues, we’re about to see the crack of that whip, where retail prices start to plunge. Why? Because once retailers understood that they had too little inventory, they ordered dramatically more — which means they’re about to have a glut of goods on the shelves, and they’ll need to cut prices to sell it all.

ZeroHedge says that the important metric to watch here is retailers’ ratio of inventory to sales. As that ratio rises, retailers will have more goods they need to sell, which will pressure them to cut prices; then the inflation bubble bursts.

It’s an intriguing economic prediction. So Calcbench decided to look at the data and see what the numbers actually tell us.

We first looked at the overall direction of inventory-to-sales ratios for large retailers over the last several years, and found that this ratio has indeed been falling since 2019. See Figure 1, below (NOTE : all $ values in millions).

So the macro-level trend is clearly downward, which squares with ZeroHedge’s theory, which squares with what everyone is seeing when they look at a price tag. 

Calcbench also looked at 10 specific retailers and compared their income-to-sales ratios for Q1 2022 against their ratios for all of 2021. Of those 10 firms, seven had significantly higher ratios in early 2022 than they did in 2021. Only one had a lower ratio, and two were essentially flat. See Figure 2, below.

If you prefer a simpler view of the data, one could just look at change in Inventory levels at these firms from the end of ‘21 to the end of the first quarter of ‘22.  The story is of rising inventories. 

Yes, the rise in percentages for Wal-Mart and Amazon is small, at roughly 8% each but in dollar terms that is a $4.7 billion dollar increase in inventories at Wal-Mart and a $2.3 billion dollar inventory increase at Amazon.  Home Depot is up 14.6% for an increase of over $3.2 billion.  

If you believe ZeroHedge’s theory, then we’re about to see these retailers start offering clearance sales and other discounts to move all those extra goods off their hands.

Whether one actually should believe ZeroHedge’s theory is not a question for Calcbench to answer. Analysts should note, however, that if retailers start slashing prices, that presumably would lead to poor revenue growth later this year — and expectations of lower future growth push stock prices lower. Well, that’s what we’ve seen for shares of large retailers lately. So perhaps people do expect this inflationary bullwhip to crack after all.

Choose Your Own Analysis

Analysts can conduct their own research along these lines with just a few keystrokes in Calcbench. First select the retailers you want to study; then visit our Bulk Data Query page.

From there, you can select the date range you want to search. We would recommend you set your search for quarterly results, using a period range from, say, the start of 2019 through first-quarter 2022. Then check off the Revenue box on the income statement column, and Inventory from the Asset column. Figure 3, below, shows a typical setup.

You’ll then get an Excel spreadsheet with all the data you want, and you can perform whatever analysis and modeling you need.

So go get cracking!

Wednesday, May 18, 2022

Calcbench has a released an improved version of our Excel add-in.  Performance is drastically improved.

Download the new version @

If you have questions or difficulties installing the add-in contact us.

Tuesday, May 17, 2022

If you’re a hardcore, process-oriented analyst, this post is for you. Chris Petrescu is the founder and CEO of CP Capital. As a data strategist and a former corporate finance manager, he has a long-standing relationship with financial data. We talked with Petrescu about Calcbench’s point-in-time data and how you can leverage it for a competitive edge.

Q. Tell us about Calcbench’s point-in-time data. What does it do? A. Calcbench’s point-in-time data allows you to take a snapshot of a company’s past. Analysts use point-in-time analysis to assess the evolution of a particular data point.

Q. How does point-in-time analysis help you achieve more accurate financial analysis? A. Point-in-time data isn’t altered by reclassifications or restatements. For historical market analysis, using point-in-time data allows you to remove certain biases that can undermine your research.

Point-in-time data helps you avoid “survivorship bias.” Some datasets will remove companies that have gone bankrupt, or overwrite companies that have been acquired. For systematic firms, this is an issue. Your historical analysis will look rosier because you’re only analyzing companies that have “survived” into the present time.

In addition, point-in-time data helps you avoid “look-ahead bias.” Vendors can store data delivery information incorrectly. For example, a vendor might time-stamp data delivered at 9:30 a.m., when it may have been known to the public markets, but it was actually not delivered until 11:00 a.m. If you’re calibrating a model to trade at the market open, you need to build a model that is trading on data known at that time.

Point-in-time data controls for these biases by accurately storing all company data, regardless of current-day status, and accurately time-stamps the data.  It sounds simple, but some of the largest data vendors in the world don’t grasp these concepts, or don’t care to.

Q. What pitfalls should analysts watch out for? A. Certain hedge funds are more prone to point-in-time data issues than others.  The farther back in time you look, the greater potential for point-in-time data issues.  So, a discretionary investor analyzing a handful of names over a few quarters is far less likely to uncover these issues, while a systematic firm analyzing 3,000 stocks over 5 years most certainly could detect such issues.

Q. What advice would you give an investor looking to integrate point-in-time data into their financial analysis? A. For starters, ask your financial data company how they handle their historical data. Also run high-level analytics to check if your data vendor is in fact accurately storing its data correctly.  It’s extremely important to know this about a dataset early on in the research process, so you can give yourself the opportunity to evaluate alternatives.

Q. How can you get point-in-time data from Calcbench? A. Calcbench subscribers get point-in-time standardized data by downloading the Calcbench API client Python package, and then calling the standardized method. (See screenshot below.) For a demo, contact

Thursday, May 12, 2022

The war in Ukraine is a humanitarian tragedy, and even worse, it shows no signs of ending any time soon. Now corporations need to confront a tricky financial reporting question: What should you disclose to investors about how the war in Ukraine is affecting your business?

Calcbench first wrote about Russia’s invasion of Ukraine at the beginning of March, when the war first started and nobody had any idea how events would unfold. Even then, a few firms began making some disclosures about the war’s effect in their operations, typically saying something in their Management Discussion & Analysis.

The issue is on our minds again now for two reasons. First, multiple companies have started citing the war as reason for a non-GAAP adjustment to net income. Second, the Securities and Exchange Commission just published a sample comment letter asking about the war’s effect on corporate reporting — a letter that told companies to tread carefully when putting a Ukraine non-GAAP adjustment in the earnings release.

Let’s start with the disclosures themselves.

Some of the disclosures are straightforward. Owens Corning ($OC), for example, filed its latest earnings release on April 27. Included in the release was this note:

In late March, Owens Corning made the decision to exit Russia through a transfer or sale of its facilities and, earlier this month, halted all future investments in Russia. The company is working to expedite its exit, while remaining committed to the safety and security of its employees in the country. 2021 net sales in Russia were approximately $100 million, or about 1 percent of the company’s consolidated net sales.

That’s all Owens Corning had to say about things. While the company did include various non-GAAP adjustments to net income (like just about every other firm out there), an adjustment for lost business in Ukraine and Russia was not among them. But providing a sense of net sales in Russia in 2021 does give investors some sense of proportion.

More interesting is Philip Morris International ($PM). The tobacco giant filed an earnings release on April 24 and did include adjustments for lost revenue in Russia and Ukraine. See Figure 1, below.

Philip Morris then provided an updated forecast for 2022, where the company did include that $0.10 adjustment for first-quarter 2022, and then assumed no other revenue from either country for the rest of the year. See Figure 2, below.

Further down, Philip Morris also discloses that Ukraine accounted for less than 2 percent of total revenue in 2021 (Philip Morris revenues were $31.4 billion last year, so Ukraine was somewhere less than $628.1 million) and the company’s Ukrainian assets were worth about $400 million. Meanwhile, total Russia revenue in 2021 was about $1.9 billion (6 percent of revenue) and assets in country were valued at $1.4 billion.

A final example comes from heavy-industry manufacturer Cummins ($CMI), which filed an earnings release on May 3 that includes detailed breakdowns of which divisions suffered how much costs due to Russia disruptions. Total costs were $158 million, which Cummins first disclosed across its five operating segments. See Figure 3, below.

Separately, Cummins also included a narrative explanation of its Russia charges. They included inventory write-downs, asset impairments, and accounts receivables that presumably will never arrive. Within that narrative note Cummins also included another table, shown below, that breaks down the $158 million another way.

Meanwhile, the SEC Says…

We still have that sample comment letter from the SEC, published at the beginning of May. The letter raised two points about non-GAAP adjustments related to Ukraine.

First is the idea of adjusting for lost revenue due to Russia’s invasion of Ukraine. The SEC’s terse directive: “Please remove these adjustments.” Why? Here’s the full explanation in the comment letter:

We note your adjustment to add an estimate of lost revenue due to [Russia’s invasion of Ukraine and/or supply chain disruptions]. Recognizing revenue that was not earned during the period presented results in the use of an individually tailored revenue recognition and measurement method which may not be in accordance with Rule 100(b) of Regulation G. Please remove these adjustments.

Basically, if you include a non-GAAP adjustment for revenue that never actually, ya know, existed — that’s a no-no under SEC reporting rules.

Second, the SEC is also on the lookout for adjustments that a company claims are related to Ukraine, but perhaps are just normal and routine costs of business. In that case, the SEC will be looking for more fulsome disclosure about whether a company’s one-time Ukraine adjustments really are as one-time as it claims:

We note your adjustment for certain expenses [such as compensation expense or bad debt expense] incurred related to your operations in Russia, Belarus, and/or Ukraine that appear to be normal and recurring to your business. Please tell us the nature of these expenses. Explain how you have considered Question 100.01 of the Division’s C&DI for Non-GAAP Financial Measures and why you believe that the expenses excluded from your non-GAAP measures do not represent normal, recurring operating expenses.

The rest of the comment letter addresses other disclosure issues, such as what goes into Management Discussion & Analysis, cybersecurity risks, and internal control over financial reporting. All of the comment letter is food for thought for analysts; if the SEC is wary of what companies are reporting about Ukraine issues, those issues are worth keeping on your radar screen too.

Monday, May 9, 2022

You may have noticed that the stock market has been going down the tubes lately. Here at Calcbench, however, we wanted to press further. Just how far down the tubes have share prices gone, really?

To answer that question, an analyst could look at the price-to-earnings (P/E) multiple for one or more firms you follow — but that might not be the most accurate metric, because the earnings part of the equation is net income. Since scads of companies adjust net income and report non-GAAP earnings, that implies that they don’t believe “pure” net income is the most accurate measure of business performance. That, in turn, calls into question whether P/E ratios based on net income are the most reliable metric of value.

We decided to answer the question by examining the trailing 12 months of net income for 353 non-financial firms in the S&P 500, and then adding back the amortization of intangible assets to net income. Why? Because those amortization costs are the most common non-GAAP adjustment that large firms make. If companies believe that amortization costs are worth adjusting for net income, then by the same logic those costs are also worth adjusting for P/E ratios.

Once we had those adjusted earnings numbers, we then divided them into companies’ market capitalization at the end of March and at the close of business on May 5. Table 1, below, shows the results for all 353 firms we studied, tallied up as a whole.

As you can see, including the amortization adjustment produces a small but significant difference. We also calculated the earnings yield, which essentially is the inverse of the P/E ratio. It looks backwards at prior earnings, rather than anticipates future earnings; and earnings yield rises as share price falls. Again, we see a small but significant difference when amortization adjustments are included in the calculations.

What to Do Next

For the record, the long-term historical average P/E ratio for S&P 500 firms falls somewhere between 13 and 15, according to Investopedia, which suggests that the market still has a few more tubes to go down before it reaches bottom. We also found a nifty chart from that tracks P/E averages back to 1926 if you’re that much of a history buff.

In more practical terms, you could also use insights like this to sharpen your own assessments of firms’ value. For example, you could compare the adjusted P/E of firms you follow against our adjusted group averages; or you could research adjusted P/E averages of specific sample groups — say, all tech stocks. You could even add other adjustments if you like, such as for stock-based compensation.

One would do all these calculations from our Multi-Company page. There, you can select the companies you want to study and start by finding their net income. Then you can add other non-GAAP adjustments by entering them into the search field on the left-side of your screen above the company results. Calcbench tracks all the most common non-GAAP adjustments, so you can pull them up with a few keystrokes.

That gives you all the data you need to start adjusting earnings, then adjusting P/E ratios, and then estimating whether a firm’s share price still has further down the tubes to go or whether it’s time to buy.

Thursday, May 5, 2022

Calcbench is devoting the month of May to non-GAAP financial disclosures — and as fate would have it, a great example fell into our laps right away. Uber filed its first-quarter earnings releases this week, with interesting non-GAAP disclosures galore.

Let’s start at the top. Uber ($UBER) filed its Q1 2022 earnings release on May 4, and according to GAAP rules the quarter looks horrible: a net loss of $5.9 billion (yes, billion) on revenue of $6.85 billion.

Except, after a number of non-GAAP maneuvers, Uber also reported an adjusted EBITDA profit of $168 million. How did that come about? Figure 1, below, is Uber’s reconciliation of non-GAAP reporting, and it tells the tale.

Almost all of Uber’s $5.9 billion loss comes from a $5.56 billion charge Uber recorded to write down investments it made in overseas ride-hailing services Grab, Aurora, and Didi. Elsewhere in the earnings release, Uber broke down the write-downs by specific investments:

  • $1.9 billion unrealized loss on the Grab investment;
  • $1.7 billion unrealized loss on the Aurora investments;
  • $1.4 billion unrealized loss on the Didi investment;
  • $462 million unrealized loss on its Zomato investment. (Zomato is a food delivery service in India.)

Uber’s Non-GAAP Through History

Uber’s non-GAAP reporting for this quarter also caught our eye because we also wrote about Uber last year. For first-quarter 2021, Uber reported an adjusted EBITDA that was actually lower than the GAAP-approved net income number. You don’t see that too often.

At the time, Uber had sold its self-driving car unit to Aurora (a tech startup that hopes to deliver self-driving cars some day in the future) for $1.68 billion, and made a $400 equity investment in Aurora to boot.

That sale, along with a few other small adjustments, led to Uber reporting a $1.71 billion gain on Other Income for the quarter. Uber had to report that as a non-GAAP adjustment, but it was an adjustment downward because you can’t always assume that other income will be a gain. Hence Uber’s adjusted EBITDA ended up being considerably lower than its GAAP net loss.

Now things have come full circle: after selling its self-driving technology to Aurora and booking a profit, which pushed its adjusted EBITDA down; Uber is now booking a loss on the investment it made in Aurora at the same time, which pushes its adjusted EBITA up.

Such a wonderful time to be alive and a financial analyst, right?

Without question, technology stocks have taken a beating in the last several weeks. Trying to discern growth, risk, and opportunity amid the flood of data those companies have reported is no easy task.

Case in point: Apple ($AAPL), one of the giants.

Apple is often praised for the rigor of its financial reporting. The challenge is simply that there’s so much of it, analysts can have a hard time discerning trends or identifying important nuggets.

For example, when Apple filed its first-quarter 2022 report on April 29, it included this breakdown of revenue by product:

To be clear, we love Apple’s voluminous disclosures; it’s one of the reasons we mention the company so often on this blog. From an analyst’s perspective, however, you need more context than what we see above to understand how Apple’s product sales might be evolving over time.

To get a better sense of that context, we used Calcbench’s ability to export historical segment disclosures to Excel. (The same ability we mentioned a few weeks ago while looking at Delta Air Lines and its passenger revenue per available seat mile.) Just hold your cursor over one of the hyperlinked numbers, then hit “Export History” when the feature box opens. 

We did that for Apple, and got a nifty spreadsheet with quarterly disclosures for each revenue segment going back to Q1 2018:

From there, you can start charting the performance of individual product lines over time. You could also overlay those performance graphs against similar segments for other firms — say, tablets or phones made by Samsung, or desktop computers made by HP. Or you could just study revenue growth within Apple’s several product lines, to see which ones are growing fastest.

We took the Excel data and quickly cooked up a chart for Mac, iPad, and wearables product lines. (iPhone revenues are so much higher they’d make the chart difficult to read.)

So, 20 minutes after we thought,”Hmmm, how is Apple doing these days,” we already had this chart done:

Whatever you’re looking for, Calcbench has the data.

Monday, April 25, 2022

Yes, we know — everyone in the universe is paying attention today to Elon Musk and his $44 billion deal to take Twitter ($TWTR) private. Calcbench, however, just noticed an intriguing disclosure from one of those other social media companies out there: Snap ($SNAP), parent company of Snapchat.

Snap filed its Q1 2022 earnings report late last week, filled with all the usual  numbers. Revenue rose 38 percent from the year-earlier period, but the pioneer in nude selfie technology still posted an operating loss of $271.5 million and a net loss after taxes of $359.6 million.

The number that most caught our eye, though, was in the Statement of Cashflows.  In the first quarter of 2022, SNAP bought stock worth a little over $1.3 Billion.  

Realizing that they didn’t pay cash for the stock, we wanted to learn more and noticed the increase in Convertible Senior Notes on the balance sheet.

Going through Snap’s footnotes, we stopped short at THE disclosure about convertible notes. In February 2022, Snap closed a private placement of $1.5 billion in convertible notes due in 2028, with an interest rate of 0.125 percent per year.

That part alone is impressive; Snap secured $1.5 billion in cash with an interest rate so low it’s essentially free money. Then came this statement:

The 2028 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election, at an initial conversion rate of 17.7494 shares of Class A common stock per $1,000 principal amount of 2028 Notes, which is equivalent to an initial conversion price of approximately $56.34 per share of our Class A common stock.

So Snap can convert those notes into shares — at management’s sole discretion, mind you —  with a strike price of $56.34. That is considerably higher than Snap’s closing price lately, around $30 per share.

We have so many questions. First, who did this deal? Who believes that Snap, a company that has never printed the bottom line of the income statement in black ink, is on an upward trajectory? When Snap says it has an “initial” conversion rate of $56.34 per share, does that mean the deal has other possible conversion rates? If so, what are those trigger events?

Snap’s disclosures about the deal don’t say much. The company did include this paragraph explaining when Snap might convert some of the notes into cash, rather than shares:

We may redeem for cash all or any portion of the 2028 Notes, at our option, on or after March 5, 2025 if the last reported sale price of our Class A common stock has been at least 130 percent of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100 percent of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest, if any.

For the record, 130 percent of a $56.34 conversion price is $73.24 per share. Again, however, notice that the disclosure refers to the conversion rate then in effect. So our question about other conversion rates, and possible trigger events for that, remains valid.

We should also note that Snap’s share price was $32.54 at the end of January and $39.94 at the end of February; so these mystery investors were buying into a rising stock. Plus, Russia’s invasion of Ukraine happened on Feb. 24. It’s possible that the investors bought these convertible notes earlier in February, when most people believed Russia wouldn’t invade Ukraine. Then it did, and the markets have been in turmoil ever since. You can’t blame the investors for that external event and its bad timing.

Snap did file a template agreement for the convertible notes on Feb. 11, but it’s only a sample agreement that includes no buyers’ names and lots of blank spaces, including blanks for the exact date of the transaction. Interesting, but not that helpful.

Figure 1, below, shows Snap’s share price history over the last five years. The company did see a remarkable run-up in price from late 2020 into late 2021 (was there a nude selfie craze we missed?), but then the price dropped precipitously. So a share price in the mid-50s isn’t unheard of — but Snap does need a lot of enthusiasm over future earnings to achieve it.  

Then again, as this convertible notes placement suggests, at least some people believe in the company. We’ll see.

Delta Air Lines filed an optimistic earnings release this week. Calcbench tools, however, show a clear picture of how much more recovery needs to happen.

Delta Air Lines’ latest earnings statement had an on-time arrival Wednesday morning, and overall the numbers looked impressive enough for a business battered by the Covid-19 pandemic — but dig a little deeper into the data, and you can see that Delta still has a long-haul flight to full recovery.

First, the headline numbers. Delta ($DAL) reported $9.35 billion in revenue and an operating loss of $783 million, compared to $4.15 billion in revenue and a $1.4 billion operating loss in the year-earlier period. Except, of course, the year-earlier period was a miserable one in the throes of a gigantic covid surge. So that’s not really comparable.

In its earnings release, Delta instead compared Q1 2022 to Q1 2019, the last time we had a first quarter that one could call normal. That’s fair, and in which case the comparables look like this:

The research crew at Calcbench, however, was more interested in the non-GAAP performance metrics reported further down the earnings release. We found a telling one there on Page 9: passenger revenue per available seat mile.

“PRASM” is a popular efficiency metric in the airline world. It is measured in cents, and gives a sense of how much revenue — airfares, in-flight meals, change fees, baggage fees, and everything else — an airline can wring from a person with his or her rear end on a seat. Delta’s PRASM for Q1 2022 was 13.33 cents, compared to 14.83 cents in Q1 2019.

Calcbench, however, lets users dig deeper into that number with a few keystrokes. If you hold your cursor over that 13.33 number, an option appears allowing you to Export History. Click on that, and you see this interface.

Our Export History feature lets you download prior-period disclosures for whatever number you’re staring at, including non-GAAP metrics. We decided to download the last 12 quarters’ worth of PRASM disclosures. Once that Excel sheet popped into view, we converted those numbers into a chart — and we saw this.

So as impressive as Delta’s recent pace of recovery might be, the airline still has a long way to go simply because it fell into such a steep nosedive in 2020 and 2021. Not until the end of 2021 did Delta come even within sight of pre-pandemic PRASM levels.

Calcbench subscribers can do their own analysis along similar lines, for Delta or any other company. (The research we did on Delta, from seeing the PRASM number to generating the Excel chart above, took us less than two minutes.) Just use our Interactive Disclosures page to find the filing you want to research, and then scroll through to the specific disclosure you want to research. Hold your cursor over that number, look for the Export History window to appear, and then do what we did above.

Happy flying!

Thursday, April 7, 2022

Now that proxy season is upon us and investors will start asking about executive compensation again, we want to remind Calcbench users that you can always pull together a quick summary of exec compensation from our databases with a few keystrokes.

To begin, start on our Executive Compensation page. You can reach that page by moving your cursor over the My Products menu at the top of your screen, and then scrolling down to the option that says, you guessed it, “Executive Compensation.”

The page itself is pretty straightforward. Simply enter the company or companies that you want to research in the search field, and hit enter. You’ll then get two links: one for executive compensation (that is, the CEO and other named executive officers) and another for board director compensation.

Click on either option, and the results will download onto your computer as an Excel file. That’s all there is to it.

For example, we entered “Dow Jones” in the search field, which quickly suggested “Dow Jones Industrial Average” as the group to analyze. That led us to Figure 1, below.

Then we selected the Executive Compensation option. Figure 2, below, shows the results.

Notice that we offer a lot of executive compensation data — a row for each named executive, for each year we have one file; and then columns that contain each executive’s base salary, bonus, options, equity pay, pension benefits, and other compensation. Plus a nifty total number at the end of each row, and the option to trace those numbers back to the actual filing, too.

Quick, easy, and informative! That’s how we like to serve up the data here at Calcbench, executive pay included.

Wednesday, April 6, 2022

Analysts can use Calcbench to research numerous profitability, liquidity, and solvency ratios, for individual firms or to compare ratios across groups.

So there we were the other day, skimming the Wall Street Journal, when we came across an interesting article about Kontoor Brands ($KTB) the maker of Lee and Wrangler jeans spun off from VF Corp. ($VFC) two years ago.

The article interviewed Kontoor’s CFO, Rustin Welton, who talked about how the firm has been reducing net debt in the last several years by focusing on its cash conversion cycle. That cycle tracks how quickly a company turns over inventory and collects payments; the more quickly your cash conversion cycle runs, the more quickly you generate free cash that can be used for tasks such as paying down debt.

In Kontoor’s case, focusing on the cash cycle has allowed the company to cut net debt from $922 million when it spun off from VF in 2019 to $606 million at the end of 2021.

So what does any of that have to do with Calcbench? We have such data! The cash cycle is one of many performance ratios we track and calculate as a matter of course for all publicly traded firms.

To find those ratios in Calcbench, one place to start is our Bulk Data Query Page. Scroll to the bottom of the page and you’ll see the many ratios we track. Figure 1, below, tells the tale. (The formal name we use for the cash cycle ratio is “Cash to Cash Cycle,” but it’s substantively the same thing.)

First, select whatever firm or group of firms you want to analyze at the top of the Bulk Data Query Page, along with whatever period of time you’re researching. (You can get data for one specific period or a range across multiple years.) Then scroll to the bottom, select the ratios you want to analyze, and press “Export to Excel.” You’ll get all the data in one nifty spreadsheet.

Alternatively, you can also use the Multi-Company Page. Again, start by selecting one or more firms that you want to study. Then enter “cash to cash cycle” in the standardized metrics text field on the left side of your screen, and the results will emerge. Figure 2, below, is an example. We included Kontoors, VF Corp., and Under Armor ($UA) to give a sense of how Kontoors compares to a few peers, and tracked the data back to 2018.

You can research any of the other ratios listed in Figure 1, the Bulk Query Page, in the same way; they are all standardized metrics one can find on the Multi-Company page too.

That concludes today’s tour of performance ratios. Pick the one that matters to you, fire up the database, and enjoy!

Thursday, March 31, 2022

In February we told you the tale of Amazon’s two main segments, where we looked at the Amazon (AMZN) retail segment (national and international) and AWS. In this piece we want to see how those two segments compare to similar businesses. We compare Amazon’s retail segments to Walmart (WMT) and AWS to Microsoft’s (MSFT) Intelligent Cloud.

Let’s start with the retail side. As we compare Amazon to Walmart, remember that Amazon FYE is Dec. 31, 2021, while Walmart FYE is Jan. 31, 2022. Walmart’s Sam’s Club segment is included in Walmart’s U.S. operations, and all amounts are in millions.

As you can see from the above table, Walmart’s operating profit margin is much higher than Amazon’s; so is Walmart’s return on operating assets (ROOA). Even Walmart’s asset turnover is higher for U.S. operations, and slightly lower for international operations.

We had seen before in our previous analysis that Amazon’s retail segments do not perform as well as AWS. Let’s see now how AWS stacks up to Microsoft’s Intelligent Cloud (IC).

As we compare Amazon to Microsoft, again remember that Amazon’s FYE is Dec. 31, 2021 while Microsoft’s FYE is June 30, 2021 (and again, all amounts in millions). Also, Microsoft does not allocate assets to segments for reporting purposes so ROOA and Asset Turnover cannot be calculated for Intelligent Cloud.

As you can see in the chart above, again Amazon does not compare favorably to Microsoft. Although AWS’s revenue is somewhat higher than Intelligent Cloud, Intelligent Cloud’s operating income is much higher.

This analysis was conducted using the companies’ segment disclosures. Want more? See our attached spreadsheet or go to Calcbench Disclosures Query and find more companies of interest.  

The month of March has been all about share repurchase programs here at Calcbench, with numerous posts and pieces of research dissecting how buyback programs work and how analysts can evaluate those efforts.

Today we offer a recap of all that material, so that Calcbench subscribers can understand everything available to them to analyze buyback programs and how you can get started analyzing the firms you follow.

First is a research note we published in early March, reviewing how much money firms have spent on share buybacks in the last decade and which firms have been the biggest spenders. Apple ($AAPL) tops the list by far and away, spending $479.55 billion on share repurchases from 2012 through 2021 — but corporations spent more than $6.52 trillion on buybacks overall in that period. Download our research note to see our full findings.

Second, we also have two pieces from columnist Jason Voss unpacking all the details of how share buyback programs work:

Third, Calcbench built an Excel template that subscribers can use to perform the same analysis Voss did for firms beyond Nvidia. You can download the template and then use it for your own analysis by entering the ticker symbols for firms you follow. (Please note, that interactive feature will only work for Calcbench subscribers. If you’re not a subscriber and want a trial of the service, just contact us at

And as you might have guessed by now, we love this stuff. If you have special requests related to share buyback research, we’re happy to hear your needs and see how we can help with one-off projects or research requests; again, just drop us an email to get the conversation started. We have millions of pieces of financial data in our archives, so whatever you’re hoping to do, we have the data to do it somewhere in there.

By Jason Apollo Voss

Today we continue our two-part dive into share repurchase programs, trying to answer an important question for financial analysts. Considering the trillions of dollars that firms have spent over the years buying back shares — how can one determine whether that’s the best use of a company’s capital?

The information to answer that question is tucked away in a company’s Consolidated Statement of Shareholders’ Equity. In my previous column we reviewed how the Statement of Shareholders’ Equity is constructed using microchip technology company Nvidia (NVDA) as an example.

Now let’s study the data that Nvidia has disclosed on that statement in recent years, to analyze Nvidia’s own share repurchase spending.

First, we should note that Nvidia’s disclosure on its stock-based compensation program is excellent; the company even attributes issuances to different parts of its organization. That, in turn, allows us to do an interesting analysis to answer the question: Is Nvidia getting a good bang for the buck from its research and development department stock options program?

Starting the Analysis

To begin, think of Nvidia’s options grants as an investment. Like any investment, it should generate a return on capital — and like all returns on capital, calculations are done over an investment time horizon.

In its Note 4, Nvidia says that its vesting period for options is 2.5 years. So if its options program is structured well, then we should see an increase in revenues about 2.5 years after an investment in R&D. Given that Nvidia is competing in an industry where the technology turnover is rapid, it’s reasonable to think that two to three years out, its R&D ought to drive a large proportion of new revenues.

So how did Nvidia actually perform?

In 2019 Nvidia expensed $336 million in its stock options grant (according to Note 4) to its R&D team. Total R&D expense for that year was $2,376 million, meaning stock option incentives were approximately 16.5 percent of R&D expense.

How much did revenues grow by two years later? By $4,959 million ($16,675 million in 2021 – $11,716 million from 2019).

This increase may not entirely be attributed to new products; some of it doubtless came from sales to new customers and new regions. Nonetheless, Nvidia managed to have an incremental revenue increase relative to its R&D expense from two years prior of 208.7 percent. (That is, $4,959 million in incremental revenues after t + 2 years ÷ $2,376 million in R&D expense in time t.) Not bad.

Because of Nvidia’s excellent disclosures, we can improve on this blunt force calculation even more (and we will, below). Nonetheless, this evaluation of R&D can be done for other companies, too.

Next up: let’s answer some of the basic questions about share repurchase programs. The following summary table created by Calcbench is helpful in answering our questions. (Calcbench subscribers proficient in Excel and XBRL can do this themselves; or Calcbench can provide help upon request. Also, those DIV/0 errors in 2020 and 2021 happen because Nvidia stopped buying back shares in those years.)

Are these programs just offsetting share issuance to execs and employees?

If the answer to this question is “yes,” then it might be that the company is managing its earnings per share via its share repurchase program. In Nvidia’s case, however, based on this analysis, the answer at first glance is likely no, because its ratio of shares repurchased to issuance is less than 1.0. This means that the company’s share buyback program is not fully offsetting share issuance.

When coupled with the analysis above about the incremental revenue achieved by the company relative to its R&D spend (including options issuance), then we can conclude that Nvidia’s repurchases are not just offsetting share issuance to execs and employees, since the repurchases are also earning a return on their R&D. In other words, Nvidia’s incentives seem to be driving better business outcomes.

Are these programs simply a way of managing earnings per share?

In Nvidia’s case, the answer seems to be that it isn’t massaging earnings per share via its share repurchase program. If a company were trying to massage EPS through share repurchases, then its ratio of shares repurchased to issuance would be above 1.0 — meaning, it would be buying back more shares than it was issuing. As we just noted above, Nvidia isn’t doing that.

Are these programs a better use of capital than other types of investments, such as in R&D?

That’s a difficult question to answer in Nvidia’s case, because we can’t  ascertain from its disclosures something equivalent to a “same store revenue growth” estimate.

That is, what portion of sales growth each year is attributable to new products and new markets versus old customers buying more of what they have to offer? Knowing the answer to this would allow us to identify new revenues that are a result of R&D, versus a return from employees working harder or old customers buying more. A review of Nvidia’s Management’s Discussion and Analysis and its discussion about revenues doesn’t help either,  because Nvidia doesn’t  provide a “same store revenue growth” type figure.

One possible way to estimate the effect of this is to look at Note 4 again and notice the proportion of issuance attributable to different parts of the company. (Again, this is only possible because of Nvidia’s excellent disclosures.)

That information for Nvidia looks like this:

We can treat as a hypothesis that Nvidia knows what it is doing when it incentivizes different employees within the company. Said differently, the above averages are likely good proxies for what proportion of new revenues can be attributed to its sales force (likely represented by the “cost of revenue” stock-based compensation), R&D scientists and their new inventions, and other employees (likely represented by the SG&A line, above).

Knowing this, we can make an estimate that 59.2 percent of new revenues stem from R&D. That comes directly from the table above, in the “Average” line.

That, in turn, allows us to re-evaluate the possible returns on R&D that Nvidia experiences. Incremental revenues of $4,959 million (from earlier) x 59.2 percent (assumed contribution attributable to R&D efforts from our table above) = $2,936 million of incremental revenues due to R&D. R&D expense from 2 years prior was $2,376 million. Meaning the total return in two years is 23.6 percent.

By contrast, let’s look at the amount of value-add of the share repurchase program. In 2019, Nvidia bought back 9 million shares of stock according to its Consolidated Statements of Shareholder’s Equity, for a price of $1,579 million. The average price per share of these shares was therefore: $1,579 million ÷ 9 million shares = $175.44. As of two years later at the end of fiscal 2021 Nvidia stock was trading at $129.90 (closing price on 29 January 2021), or a two year total return of: -26 percent.

Ouch! Their share repurchases seem to have lost them money. But wait, there’s more!

Recall that Nvidia said its options vest over 2.5 years? So we should look at the three-year period, too. The closing price three years later was $251.04, or a three year total return of: 43.09 percent.

I know what you are thinking, however: What about its stock price at the 2.5-year mark, to match the options vesting period with outcomes? Nvidia’s closing stock price at the end of July 2021 was $197, for a total return of 12.3 percent.

What this highlights is that research is hard; lots of our work is as much art as it is science. Two of the three periods examined above (the 2-year and the 2.5-year periods) actually look as if Nvidia’s share buybacks are not as beneficial as a straight investment in R&D.

But our analysis is not complete because there was also a boost to earnings per share due to Nvidia’s buybacks. The value-add is measured as:

  • Earnings per share as reported 2019: $4,141 million in net income ÷ 608 million shares outstanding = $6.81
  • Earnings per share, without 9 million shares bought back = $4,141 million ÷ 617 million shares = $6.71
  • So, an additional $0.10 per share in Nvidia EPS cost $1,579 million, versus total net income of $4,141 million and EPS without the buyback of $6.71.

So far our analyses seem to suggest that share buybacks are not earning as high a return for Nvidia as its R&D program is earning. For completeness, though, perhaps the company is buying back shares because of the price per share effect? To do this analysis we:

  • Multiply that $0.10 increase in EPS by its P/E ratio of 19.1 (which is $129.90 price per share ÷ $6.81 EPS). This gives us a possible increase in market cap of $1,907 million.

Again, the company spent $1,579 million to get a possible valuation boost of $1,907 million. What if we look at the 2.5-year period? To calculate the P/E ratio at the 2.5-year mark we need the EPS figure from Nvidia’s third-quarter 2020 through to the end of second-quarter 2021.

This is a bit tricky to calculate, but using the figures from annual and quarterly filings for the periods in question, we can figure out that Nvidia’s EPS for that period was $8.11. Its stock price at Aug. 1, 2021 was $197, which gives us a P/E ratio of 24.3. Our estimate for the boost to market cap is therefore $2,429 million versus a capital outlay of just $1,579, or a return on investment of 53.8 percent. By this calculation, it looks as if the buyback is inexpensive and actually a creation of capital for shareholders.

What is fascinating, of course, are the possible feedback effects of the buybacks. That is, the company buys back its shares and earns a valuation bump. That, in turn, leads to enthusiasm for the company’s share price performance, which results in an even higher multiple. Something to ponder as you await that next earnings release.


Our two columns on share buybacks provide the basis for any financial analyst to look more critically at a firm’s share repurchase programs. We do have two final points worth noting.

First, Calcbench has designed a template to let you import as-filed Statement of Shareholders Equity from any firm; we encourage you to download it. Data diehards can also use our API if you’d prefer. Drop us a line at and we’ll get you squared away.

Second, after we wrote these two columns examining Nvidia’s 2017 to 2021 annual reports, the company filed its 2022 report. Those numbers look a bit different for several reasons, including a would-be merger that ultimately was called off and a 4-to-1 stock split. Don’t let that throw you; the analytical techniques discussed here, plus the Excel templates Calcbench has cooked up, are a solid foundation for you to conduct your own analysis of the firms you follow.

This is an occasional 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 every other month.

FREE Calcbench Premium
Two Week Trial

Research financial & accounting data like never before. Get features designed for better insights. Try our enhanced Excel Add-in. Sign up now to try the Premium Suite.