Sunday, September 19, 2021

Another fascinating dispatch today from the crack Calcbench research department, this time looking at the kingpins in share repurchase programs.

Share repurchase programs have been all the rage on Wall Street for years as a means to boost earning per share. We found, however, that the total amount of dollars spent on share buybacks is increasingly top-heavy — to the point that in 2020, only 10 firms in the S&P 500 accounted for half of all money spent on share buybacks.

Moreover, that top-heaviness in share buybacks has been increasing over time. The 10 biggest spenders in any given year are accounting for more and more of all money the S&P 500 spends on buybacks. See Table 1, below.

The 10 specific firms might vary from one year to the next, although several big names — looking at you, Apple ($AAPL) — do recur plenty of times. We ranked the top 10 for 2020, and they’re in Table 2, below.

Spending on share repurchases did decline in 2020 amid the pandemic’s economic uncertainty, but now seems to be rebounding briskly for 2021. That’s been driven by healthy corporate profits so far this year, and the Fed allowing more banks to resume spending on share repurchase programs.

Who will crack the Top 10 list for 2021? We’ll let you know in a few more months!

We’re a bunch of cheapskates here at Calcbench, so when Hormel Foods filed its latest quarterly report the other day, we dove into it immediately. What did Hormel have to say about the cost of goods sold, and whether rising costs for supplies are pushing up its prices?

At first glance, that line item seems troubling for Hormel ($HRL). Cost of goods sold (technically reported as cost of products sold) was $2.44 billion in its quarter that ended July 25, up 24.6 percent from $1.96 billion in the year-ago period. That jump in costs was larger than the 20.2 percent increase in revenue that Hormel saw at the same time. So even though Hormel just reported its best revenue quarter ever, that increase in cost of goods sold kept gross profit essentially flat. See Figure 1, below.

But wait! There’s a more complex story here. In June 2021 Hormel closed a $3.4 billion acquisition of Planter’s, the snack nuts business, from Kraft Heinz Co. ($KHC). So Hormel’s latest quarterly numbers aren’t necessarily comparable to what the company reported one year ago.

To get a better sense of things, we opened our Interactive Disclosures database to look into the footnotes. There, in the Acquisitions  & Divestitures section, Hormel offered some pro forma numbers of what its financial performance would have looked like if the Planters acquisition had happened in October 2019. See Figure 2, below.

Revenue would have been about $120 million higher, and net income would have been 22 percent higher. Here in the real world, however, higher Sales, General & Administrative costs, as well as higher interest expense, cut into operating profit and net income.

What you may want to take away from this disclosure is that when companies disclose Pro Forma numbers, those too, are available in the Calcbench database.  Users can grab them and use them in models.  Models like the one here which attempts to back out the Planters Revenue and Net Income in order to analyze the acquisition.  Note that Hormel paid 3.4 billion dollars to acquire Planters from Kraft-Heinz!  If our back of the envelope math is correct, it looks like it will take 88 quarters at current profitability (GAAP Net Income) to make back the purchase price.

Another notable piece of information from the Purchase Price Allocation disclosure that Hormel filed?  The Goodwill paid for the Planters acquisition was $2.3 Billion, or 67% of the total acquisition price.  

If you’d like to hear more, head to our webinar on the 23rd.  Register here

Searching for Inflation

Wow!  Now, what did Hormel say about future pressures on cost of goods sold?

All we had to do was search for the word “inflation,” and things started coming into focus. Right at the start of the Management Discussion & Analysis, Hormel had this to say: “All four business segments absorbed higher input costs due to inflation on raw materials, freight, labor, and supplies.”

Further down, Hormel devoted an entire section to cost of goods sold. It started with this:

Cost of products sold for the third quarter and first nine months of fiscal 2021 increased due to inflationary pressures stemming from raw materials, packaging, freight, labor and many other inputs. The inclusion of the Planters snack nuts business during the third quarter also was a driver of higher costs.

All right, maybe we need to cut back on the peanuts during football season; that’s probably good for the blood pressure anyway. Then came this comparison of supply chain costs from last year to 2021:

Direct incremental supply chain costs related to the COVID-19 pandemic for the third quarter and first nine months of fiscal 2021 were approximately $2 million and $21 million, respectively. This compares to approximately $40 million and $60 million of higher operational costs related to the COVID-19 pandemic incurred in the third quarter and the first nine months of fiscal 2020.

The company expects to operate in a high cost environment for the remainder of the year.

Fair enough. But the question for financial analysts is which costs are increasing this year, and why. That is, we’re not surprised that supply costs rose sharply in 2020 — the world was suffering through enormous disruption, and scads of firms had to purchase more supplies for the health and safety of employees.

Were those higher costs in 2020 one-time expenditures for, say, plastic dividers on the shop floor? And if so, what does that mean for this year’s higher costs? Are these new costs new one-time expenditures, or transitory inflation, or something more permanent?

We at Calcbench don’t know; but we can help you find the data and disclosures companies are making, so you can ask better questions.

What Comes Next

We kept reading through Hormel’s MD&A. At the discussion of gross profit, we found a quick table showing a year-over-year decline in the company’s gross profit for both the quarter and year to date. See Figure 3, below — and also pay close heed to the narrative disclosure underneath the numbers.

Hmmm. “Broad-based inflationary pressures” affecting all four Hormel business segments. A “lag in mitigating pricing actions,” which sounds like Hormel didn’t pass along higher costs to supermarket chains and consumers — yet.

Even more telling, Hormel expects gross profit to recover “as additional pricing actions go into effect,” so it sounds like those price hikes will be coming. We may be paying a bit more at the supermarket soon; the moths that live in our wallets will not be pleased.

Conduct Your Own Research

Calcbench does make it easy for you to research the cost of goods sold at whatever firms you follow. Just visit our Multi-Company page and start typing “cost of…” in the standardized metrics field. You’ll quickly be able to search Cost of Goods Sold (COGS), the formal line item; as well as numerous metrics for guidance on cost of goods sold that companies might offer, including several non-GAAP metrics related to cost of goods sold.

But as our Hormel example demonstrates, once you find the numbers, read the footnotes anyway! Just use the Interactive Disclosures database to search relevant terms such as “inflation”, “supply chain,” or even “climate disaster” if you’re researching an agribusiness firm.  

The data is in there somewhere. We’re here to help you pull it out.

Thursday, September 9, 2021

As you might have already heard, later this month Calcbench will be hosting a webinar on the current state of goodwill on the corporate balance sheet — including a look at how goodwill assets figure into the value of M&A deals.

So in preparation for that webinar, we’ve been analyzing M&A deals overall. Some of the numbers we’ve found are so astonishing, we just had to share them here right away.

What have we found so far?

  • Today’s S&P 500 firms have made more than 3,000 acquisitions since 2010, according to the purchase-price allocation filings captured in our databases.
  • Those 3,000+ deals had a total dollar volume of roughly $5.4 trillion. Even more interesting: 50 firms accounted for 54.5 percent of that total dollar volume over the last decade.
  • When you examine those 50 firms specifically, they made a total of 500 acquisitions over the prior decade — $2.943 trillion worth, of that $5.4 trillion total.

So right away, if you’re an investment banker or capital markets adviser looking to court the big fish, those 50 firms are the biggest. Our databases can empirically demonstrate who those firms are.

We also delved deeper into those 500 deals. Within that $2.943 trillion…

  • $27.19 billion was reported as “indefinite intangible assets,” such as trademarks or perpetual franchise rights.
  • $703 billion was reported as “definite-lived intangible assets,” which can include copyrights, patents, or franchise rights with fixed periods.
  • $1.27 trillion was reported as goodwill, which can include… um, well, anything else that doesn’t have a fixed expiration date or is tied to a specific piece of intellectual property.

Now you see why we want to host a webinar on current issues in goodwill. Because it accounts for a lot of value in M&A deals.

To demonstrate that point, we leave you with Figure 1, below. This shows the percentage of total M&A value that was reported as goodwill, from 2010 through 2020.

That’s a lotta goodwill! We look forward to our webinar discussion on Sept. 23

By Jason Apollo Voss

In last month’s column, I used Motorola as a case-study to explore the importance of examining the quality of long-term receivables to understand the reliability of a firm’s revenue disclosures. Given that our Motorola example was ancient history (the era of 1998-2000), this month let’s look at an example from just last year: General Motors.

A Current Case Study: GM

Last month I offered three steps to follow when examining long-term financing receivables:

  1. What is the current economic and operating context of the company?
  2. What is the growth in long-term financing receivables relative to revenue growth? If much faster, is this a part of the company’s strategic plan?
  3. What are competitors doing to generate new revenues, and what is the creditworthiness of the customers to which the company is selling?

In General Motors’ case, we are going to evaluate its 2020 revenues by looking at its long-term financing receivables.

Current Economic and Operating Contexts

2020 was the Year of COVID-19. Globally, the virus shut down the economy. This meant massive job losses, and much less demand for transportation.

Those two forces taken together mean that the context for General Motors was less than ideal. If no one is driving anywhere, automobiles are not wearing out as fast. That reduces the demand for autos.

Also, if people’s incomes are lower because they don’t have jobs, they’re more likely  to repair the automobiles they have before purchasing a new one. In some cases, they may even forego one good (their automobile) for a cheaper one: public transportation.

In other words, we can expect that GM’s 2020 context included:

  • Pressure on sales, and an incentive to discount prices to sustain demand;
  • More extension of credit to customers so that they can afford GM automobiles; and
  • Creditworthiness of customers to decline.

Growth in Long-term Finance Receivables Versus Revenue

Here are the past 10 years of GM’s disclosures around both “Long-term finance receivables” and “Net sales and revenue”:

Pay attention to the figures highlighted in yellow. In particular, look at the growth in “Total finance receivables” as a percentage of GM’s “Automotive net sales and revenues.”

In 2011, finance receivables were just 6.3 percent of total automotive net sales and revenues. By 2020, that figure ballooned to 55.2 percent. For example, in 2020 total finance receivables were reported as $59,970 million. When divided by $108,673 million of automotive net sales and revenue, that equals 55.2 percent.

As a research pro, you clearly would prefer that this kind of growth is “part of the plan.” If not, then this spells doom for GM, yes? Recall that in our Motorola example for the two year period of 1998 and 1999, the absolute growth of the company’s long-term finance receivables was larger than that of revenues. In other words, all new sales were financed sales, not cash sales.

In GM’s case, the third and fourth highlighted lines, above, show this story. As you can see, in every year for the last 10 (except 2016) finance receivables grew, on an absolute basis, faster than automotive net sales and revenues. The totals are that automotive net sales and revenues shrank by $40,193 million from 2011 through 2020; while finance receivables grew by $50,620 million. Wowza!

This is clearly not an ideal  situation. Even if it were a part of GM’s strategy to grow its financing business, you would want the returns for financing to be high, since you are substituting a cash sale with a financed sale. Surely you know that the interest rate spread story 2011-2020 is not a good one. Spreads are low because interest rates are historically low.

What Is the Creditworthiness of GM’s Customers?

Our data above suggest a high-wire act on the part of General Motors — an act that is only sustainable if GM can:

  1. Attract creditworthy customers to purchase its automobiles; and
  2. Maintain the creditworthiness of its customers over time.

If creditworthiness tanks, GM likely does, too. Revenue sanctity is always a strategic issue for a company. No revenues = no business. Thus, GM doesn’t only have pressure to manage its loan-based customers well; it also has pressure on the automotive design team to create compelling products that attract high credit-quality customers.  Marketing must also inform creditworthy customers of the GM story. And on and on.

In other words, GM can ill afford any mistakes.

Fortunately, the story here (based on GM’s disclosures) is encouraging. Specifically, the company reports the following credit statistics for customers in its 10-K filing for 2020:

Importantly, these figures show only the 2020 creditworthiness picture, even though it may look like the data go back to 2016. What the above data show are the vintages of loans made to both retail and dealership customers. In other words, there were $555 million of loans made to customers in 2016 where the credit rating is greater than 680 (that is, prime). While the data above are limited to 2020, they are instructive because of the perfect storm economic and operating environment that GM faced due to COVID-19 in 2020.

At a glance we can see that GM has done a good job of maintaining the creditworthiness of its customers. In fact, it looks as if the overwhelming majority of its retail and dealership customers are creditworthy. To make better sense of these figures, I calculated common-size statements for each of the years disclosed (that is “prior” through to 2020, and those customers/dealerships on “revolving” credit):

Here you can see that GM is doing a good job of staying up on the high wire. Most of its loans outstanding are in the hands of creditworthy customers. Whew!

[Let me interrupt this program, for a general financial statement analysis tip. Namely, get creative in your work! The above table does not exist in the GM 10(k). I took the liberty of creating my own “common-size” statement to help me tease out insights. And there are more such statements below.]

What about the percent of customers in each of the top creditworthy customers, and that cuts across retail and dealership customers? Here’s what that looks like:

Above, the most important column is the one furthest to the right. As you can see, over 80 percent of GM’s customers fall into the top two tiers of creditworthiness. We can also see across the vintages that GM has likely minted a higher-quality customer than it was previously. Either that, or the customers of previous vintages have been forced to hold on to their automobiles for longer. This story can also be extracted from the above chart. But take a look at the absolute figures shown in TABLE 2, above. GM seems to be doing OK.

Here is one final set of data to examine:

Here the denominator for every number in Table 5’s common-size figures is the $59,970 total finance receivables shown in 2020. Again, with the data presented in this way, you can see at a glance that GM has a credit portfolio that seems insulated from the wrath of COVID-19 in 2020. It also seems well poised to survive 2021, never mind that its finance receivables are growing much more rapidly than automotive net sales and revenues.

Finally, what about GM’s provision for loan losses relative to the size of its total finance receivables? In 2020 the company set aside $1,978 million against a total portfolio of $59,970, or 3.3 percent. When compared to the size of its < 620 FICO and Tier III & Tier IV customers, the figure is 18.3 percent ($1,978 million  ($10,553 million FICO < 620 + ($253 million Tier III + $4 million Tier IV))).


Research pros can never take any figure in financial statements at face value. Even a supposedly simple figure like revenues can be better evaluated by considering a company’s operating and economic context, and dissecting its disclosures around receivables.

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.

Monday, August 30, 2021

From time to time Calcbench likes to offer refreshers on basic financial reporting concepts and how to extract such data from our archives. Today let’s talk about book value.

Book value is one of the most basic, and important, concepts in financial analysis. You calculate it by subtracting a firm’s total liabilities from total assets. The difference is the firm’s book value, also commonly known as stockholder’s equity — because that difference is literally the equity that shareholders have in a firm, after netting out all those assets and liabilities.

When assets are greater than liabilities, book value is positive; that’s a good thing. When assets are less than liabilities, book value is negative. This is a bad thing because it means shareholders’ stake in the company has no value; the business owes more (in liabilities) than it possesses (in assets).

As we mentioned, you can calculate book value manually by subtracting liabilities from assets. Calcbench, however, also does this calculation for you automatically in our Multi-Company page. Just enter “stockholder’s equity” in the standardized metrics field on the left side of your screen, and we’ll return that number to you for whatever companies you’re researching.

Figure 1, below, shows the results for a few large companies we selected at random.

We included assets and liabilities along with stockholder’s equity only to demonstrate the math. You could just as well as search for stockholder’s equity alone and you’d get the same numbers you see above; or search for assets and liabilities and then work out the math yourself with a pencil. The results would be the same.

This also explains why we like to talk about goodwill and intangible assets so much — because an impairment to those assets will cut the size of total assets, and therefore lowers book value. In extreme cases, impairment could leave a firm with negative book value, which is disastrous.

Yes, we understand that other assets can be impaired too, such as an electric utility impairing the value of an expensive power plant it no longer uses. Any impairment can harm book value. But considering how goodwill keeps accumulating on the balance sheet, and how some firms have a majority of their total assets wrapped up in goodwill, that’s the impairment risk we watch most closely around here.

Anyway, if you want to find book value/stockholder equity, Calcbench provides it for any firm you’re researching with just a few keystrokes. That’s all there is to it.

For a while now, everyone has known that the Covid-19 pandemic scrambled business performance across the corporate landscape — with the general sense that larger firms have fared better, smaller firms worse.

Now we have some visual evidence of just how true that statement is.

As part of another project, the Calcbench research team was looking at the share of corporate revenues and profits that flowed to S&P 500 firms in recent years. We noticed, to no surprise, that the largest S&P 500 firms accounted for a disproportionate share of all S&P 500 revenue.

How disproportionate? Figure 1, below, shows what share of all S&P 500 revenue went to the largest 25 firms for the last 36 quarters.

That Top 25 share has stayed remarkably consistent year after year: from 40 percent in 2012, to a low of roughly 37 percent in the mid-2010s, to a high of 42 percent at the beginning of 2020 when the pandemic arrived.

That got us wondering. If revenue has been consistent among the 25 largest firms, what about the other 475? What churn have they experienced year after year?

So we ran another analysis. This one only looked at annual revenue and net income for the last nine years, but we grouped the S&P 500 into quintiles — the 100 largest, the next 100 largest, the third 100, and so forth.

Figure 2, below, shows the share of revenue for each quintile, 2012 through 2020.

Again, the consistency is remarkable. Each quintile fluctuated within a relatively narrow range despite a host of changing circumstances, including interest rate hikes in the mid-2010s to the pandemic in 2020.

Then we looked at net income. See Figure 3, below. You may want to sit down for this one.

OK, obviously the largest firms saw their share of net income soar during the pandemic, while the share going to the smallest 100 S&P 500 firms plummeted. Even more jarring, however, is that when you look closely at the bottom quintile of the S&P 500, they have not turned a collective profit in the last nine years.

Yes, some firms in that quintile have turned a profit in some of the last years, but overall that quintile reported a net loss of $237.14 billion dollars. They never reported a positive net income number in any of the last nine years.

Why is that so? What ate away profits at those smaller large firms? We need to do further research on that question — but before we go, look at Table 1, below. It shows the exact share of revenue that each quintile took home for the 2012-2020 period.

The share of revenue for the fifth quintile has been going up year after year. Moreover, that quintile’s revenue has also more than doubled in absolute dollars, too: from $95.42 billion in 2012, to $225.14 billion in 2020 — and that 2020 number is only down marginally from $226.4 billion in 2019, before the pandemic.

So whatever is pressuring this fifth quintile is in the firms’ cost structure, not its revenue gains. Its revenue gains have been reliable.

What’s going on? We’re not yet sure — but Calcbench has the data, so we’ll keep digging.

Friday, August 20, 2021

Wonderful news for financial analysts and anyone else looking for a complete picture of how Calcbench can help you research special purpose acquisition companies: we have compiled all our previous SPAC posts into one white paper, now available for download on our Research page.

Close readers of this blog might already know that earlier this summer we launched our SPAC-tacular series to study the size of the SPAC market, the disclosures that SPACs make, and other odds and ends about these firms. Altogether, the series looked at:

  • How many SPACs exist, and are making financial filings to the SEC;
  • What the financial statements of SPACs typically look like;
  • How to track IPO dates and acquisitions that SPACs make;
  • The wave of restatements that swept over SPACs earlier this year, thanks to an accounting pronouncement from the Securities and Exchange Commission;
  • The sectors into which SPAC firms “deSPAC” when they acquire operating companies (we have some great data on this); and
  • The pace of deSPAC transactions over time.

The full white paper is 21 pages, replete with examples, excerpts, charts, and data. Download, give it a read, and then drop us a line at to tell us what else about SPACs we should be researching!

In a post last month, we examined how Google ($GOOG) changed the estimated useful life of its computer servers. The company extended the estimated life of those servers from three years to four, and that change resulted in an increase to net income of $561 million for the quarter and $1.2 billion for the first six months of 2021.

Here is what Google said in its 10-Q report filed on July 28:

In January 2021, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from three years to four years and the estimated useful life of certain network equipment from three years to five years. This change in accounting estimate was effective beginning in fiscal year 2021. Based on the carrying value of servers and certain network equipment as of December 31, 2020, and those acquired during the six months ended June 30, 2021, the effect of this change in estimate was a reduction in depreciation expense of $721 million and $1.6 billion and an increase in net income of $561 million and $1.2 billion, or $0.84 and $1.81 per basic and $0.83 and $1.78 per diluted share, for the three and six months ended June 30, 2021, respectively.

What’s interesting is that Google hasn’t been the only tech firm changing the estimated life of its equipment lately. Back on Oct. 27 of 2020, Microsoft ($MSFT) included in this in its 10-Q report:

In July 2020, we completed an assessment of the useful lives of our server and network equipment and determined we should increase the estimated useful life of server equipment from three years to four years and increase the estimated useful life of network equipment from two years to four years. This change in accounting estimate was effective beginning fiscal year 2021. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2020, the effect of this change in estimate for the three months ended September 30, 2020, was an increase in operating income of $927 million and net income of $763 million, or $0.10 per both basic and diluted share.

Just like Google, Microsoft’s change in estimates significantly increased the useful lives of its servers — and also delivered a significant increase in Microsoft’s net income ($763 million, to be exact) for the quarter.

Given the similarity between these two disclosures, analysts following this sector might consider adjusting their earnings models and forecasts. Other tech firms such as IBM, Oracle, Amazon (don’t forget its booming Amazon Web Services division) or Apple may be next. Imitation is the sincerest form of flattery, after all.

Here is an Excel spreadsheet illustrating the effect on net income you may want to use. Stay tuned.

By Jason Apollo Voss, CFA

This month we begin a two-part series on the importance of examining long-term finance receivables when evaluating a firm’s revenues to see if there is a “there” there — that is, to assure yourself that, yes, a firm’s revenues are reliable.

An Ancient Case Study: Motorola

Let me take you back to the heady days of the dot-com  era, roughly from 1998 to 2000. Many newly minted web-based companies received exorbitant valuations, measured however you want to measure it. This was especially true when compared with older tech companies such as Xerox, IBM, or Motorola.

In 1999 I was invited to Motorola headquarters in Schaumburg, Ill., by my fellow research folks at the mutual fund where I served as a portfolio manager. On short notice, I was invited along for a second opinion about Motorola. This was a big deal because we were among its largest shareholders. We had to get the Motorola story right or lose big for our investors.

I conducted my usual financial statement analysis and discovered something disconcerting. Here, for convenience, are Motorola’s Consolidated Statements of Earnings and Consolidated Balance Sheets for 1995 through 1999:

Back before the days of Calcbench, I had to hand-enter this data to get all of the detail you see above. For example, look at all of that property, plant, and equipment granularity! I also calculated common-size statements over both revenues and assets.

Context is King!

Another thing I did to extract information was to look at the growth rates in different accounts. This tends to reveal the on-the-ground reality of a business much better than a management team’s narrative about its performance. Why? Because if some balance sheet accounts were growing way faster than revenues (as was the case with Motorola) this tells a research pro what is or isn’t hot in the real world operating context of the firm.

In Motorola’s case, accounts having to do with market-based investments, and a category of asset labeled “Long-term finance receivables,” were growing very fast relative to revenues. It made perfect sense that Motorola’s “Short-term investments,” “Fair value adjustment of certain cost-based investments,” and “Contributions to employees’ profit sharing funds” would be growing so fast, because the stock market was in full rocket ship mode at the time. So, these I could dismiss as not being interesting because this outcome was in alignment with expectations. Context is king!

That understanding of context, however, also led to my deep concern about Motorola’s growth in “Long-term finance receivables.” At that moment in history, Motorola was perceived as “your grandparent’s technology company.” Its products were seen as not up to par with those offered by the powerhouses like Cisco Systems, for example. Its customers included other old lion companies, and even (gasp!) the U.S. government. In other words, Motorola had an incentive to look current.

Motorola’s Image: There is no there, there

Let us return back to those “Long-term finance receivables” of Motorola’s. What the heck are those?

“Long-term finance receivables” are typically extensions of credit to customers, so the customers can  buy the company’s products.

Automobile companies do this all the time. They frequently serve as both lender and seller (of the car) to their customers. In so doing, they capture value in interest payments that otherwise would be surrendered to financial institutions. Serving as lender to customers also allows the automakers to sell cars at a discount, because they know that they will more than recoup the price discount via interest payments. All well and good.

So, what troubled me about Motorola’s “Long-term finance receivables?” The following:

  1. The compound annual growth rate of “Net sales” 1995 through 1999 was 3.42 percent.
  2. The compound annual growth rate of “Long-term finance receivables” 1995 through 1999 was 55.12 percent.
  3. “Long-term finance receivables” was not even a reported category in 1995. Instead, its value had to be indirectly calculated based on a disclosure on a finance supplement attached to the company’s proxy statement. But its rapid growth rate when compared with “Net sales” (55.12 percent vs. 3.42 percent) clearly screamed that it was important to Motorola’s current operating environment and likely its financial performance.
  4. In 1998 and 1999 “Net sales” grew by $1.137 billion, while “Long-term finance receivables” grew by even more: $1.326 billion.

All these factors combined meant that one could argue that more than all of Motorola’s growth came from financing its customers. Clearly this wasn’t sustainable unless Motorola had access to some form of cheap financing of its own. Further, what if the creditworthiness of Motorola’s customers was not so good?

Motorola’s disclosure in both its 1999 and 2000 proxy statements (DEF 14A) about its “Long-term finance receivables” gives us even more color. Below is the disclosure from 1999.

Here is the disclosure from Motorola’s 2000 proxy statement:

“Motorola Credit Corporation (MCC), the company's wholly owned finance subsidiary, is engaged principally in financing long-term commercial receivables arising out of equipment sales made by the company to customers throughout the United States and internationally.

“MCC’s interest revenue is included in the company’s consolidated net sales. Interest expense totaled $72 million in 1999, $37 million in 1998 and $13 million in 1997, and is included in manufacturing and other costs of sales. In addition, long-term finance receivables of $1.7 billion and $1.1 billion (net of allowance for losses on commercial receivables of $292 million and $167 million, respectively) at December 31, 1999 and 1998 are included in other assets.

Summary Financial Data of Motorola Credit Corporation”

From this information, I could calculate the implied interest rate being charged and compare that to market interest rates. For ’96 through ’99 the implied rates were: 4.11, 2.84, 2.78, and 3.57 percent, respectively. These rates were below market. (Calculation example for 1999: $72 million of “Interest expense”  $2,015 million of “Total assets” = 3.57 percent.)

Recall from earlier that Motorola’s “Net sales” went down in 1998? Clearly it was easy to reject the thesis that the company may have been discounting prices, but making it up by collecting interest. Why? Because not only were sales down; the interest rate charged on those sales was below market.

My nerves would be calmed if Motorola were selling its products to creditworthy customers. After all, that would be exactly as the automobile industry has done for so long: find a way to be competitive on pricing, and also to make it up by financing.

So who were Motorola’s new customers according to its 2000 DEF 14A?

“Purchasers of the company’s infrastructure equipment continue to require suppliers to provide long-term financing in connection with equipment purchases. Financing may include all or a portion of the purchase price and working capital. The company also may assist customers in getting financing from banks and other sources. During 1999 the company significantly increased the amount of customer financing provided by its consolidated financing subsidiary. As a result of increased demand for customer financing, the company’s consolidated financing subsidiary borrowed more money in 1999. The company expects that the need to provide this type of financing or to arrange financing for its customers will continue and may increase in the future.”

Then a little later in the document we have:

“In the Networking and Computing Systems Group sales and orders increased as a result of the sales growth of key customers. In the Wireless Subscriber Systems Group sales increased and orders were significantly higher due to the rapid growth of the wireless telephone market, including sales growth within the company’s PCS segment, which is the group’s largest customer.”

And finally this frightening disclosure:

“Unbilled receivables which are included in accounts receivable but not yet billed to the customers were $737 million and $600 million at December 31, 1999 and 1998, respectively.”

In other words, relative to Motorola’s “net sales” or revenues, the company was  extending credit to un-creditworthy customers. In exchange for near worthless IOUs from its customers, Motorola was sending product out the door.

Moreover, Motorola also had a gigantic proportion of its revenues that were “unbilled.” Umm, why? If product has been delivered, then why have customers not been billed? Whoa!

As I arrived in Schaumburg, guess which questions were top of mind for me?

  • Who are your newest big customers?
  • Are you throwing product at customers?

Motorola’s investor relations pro was only too pleased to communicate to us that the new and biggest customers were mostly wireless telecom companies. In other words, Motorola was just as hip as the dot-com newbies. What he did not realize was my shareholder horror at recognizing that these new customers were not cash flow positive, and were heavily leveraged.

So  what trouble did Motorola get into later in 2000? You guessed it — defaults on the part of many of its new, sexy customers.

This scandal was a preventable surprise because the whole story was there for the diligent research analyst who can bridge the quantitative disclosure with a qualitative understanding of context. The analyst who can recognize when there’s no “there” there.


To wrap up, let us review the important considerations when examining long-term financing receivables:

  1. What is the current economic and operating context of the company
  2. Relative to revenue growth, what is the growth in long-term financing receivables? If much faster, is this a part of the company’s strategic plan
  3. What are competitors doing to generate new revenues, and what is the creditworthiness of the customers to which the company is selling?

Knowing the answers to these questions allows a research pro to evaluate the substance of  a company’s revenues both today and tomorrow.

Next month we use the techniques shared this month to examine General Motors. We will add some new wrinkles, such as an examination of the Allowance for Doubtful Accounts. And because we use recent history in this next example, our analyses will make use of Calcbench’s cool tools!

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.

Google ($GOOG) dropped another monster quarterly report earlier this week, reporting $61.9 billion in revenue for Q2 2021 and $18.5 billion in net income. Net income was particularly impressive, in that it was more than double the $6.96 billion reported one year ago.

The vast majority of that amount came from Google’s services division, which includes online advertising, sales of apps and hardware, and subscription fees for various products. But tucked away in the footnotes, we noticed one additional gem: Google has extended the estimated useful life of its servers and other equipment, which added an extra $561 million to the bottom line in Q2.

Hey, every little bit helps, right?

The full disclosure is listed in Google’s Summary of Significant Accounting Policies, which you can find using Calcbench’s Interactive Disclosure viewer. There, under the headline “Change in Accounting Estimate,” the company says this:

In January 2021, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from three years to four years and the estimated useful life of certain network equipment from three years to five years … The effect of this change in estimate was a reduction in depreciation expense of $721 million and $1.6 billion and an increase in net income of $561 million and $1.2 billion, or $0.84 and $1.81 per basic and $0.83 and $1.78 per diluted share, for the three and six months ended June 30, 2021, respectively.

Put more simply: Google decided its equipment can last longer than originally expected. That pushed down the company’s depreciation expense, and the savings fell directly into the net income line.

Of course, $561 million is only 3 percent of Google’s total net income for the quarter, which barely qualifies as material. We were more interested in the nature of the accounting change rather than its size — because fiddling with the estimated useful life of assets is something any company can do.

Our columnist Jason Voss, for example, recently wrote about the Property, Plant & Equipment line item and how an analyst might estimate the average life of fixed assets. As Voss noted in his column, “Many firms play games with depreciation & amortization to improve their short-term results, and such games depend on PP&E.”

To be clear, we are not suggesting that Google is playing with estimated asset lifespan here. Other firms, however, have been called out for such abuses. For example, in 2019 the Securities and Exchange Commission hammered Hertz on accounting fraud. One of the company’s schemes was to extend the estimated life of its rental fleet from 20 months (the industry norm) to 30 months, which kept depreciation costs low and therefore goosed net income up.

So Google’s morsel of disclosure is just another reminder that analysts should always be on the lookout for details that might tell more than you’d expect — and as always, Calcbench has the data!

Monday, July 26, 2021

With all the talk about SPACs (special purpose acquisition companies) and “deSPACing” (when a SPAC acquires an operating company and the two fuse into one publicly traded firm), some people may feel like everyone is doing it these days.

So, continuing with our ongoing series about SPACs, we decided to check. We wanted to see how prevalent SPACs and deSPACing really are.

Figure 1, below, tells the tale. We charted the number of SPACs each year (orange line) for the last decade, compared to the number of firms that deSPACed (blue line) in the same year.

How did we get those numbers? SPACs are defined as firms that use SIC 6770, the code for blank check companies; and a deSPACing is detected by a change in that reported SIC from 6770 to something else. These cases are easy to identify as Calcbench has a metric called “SIC Code at Time of Filing.”

As one can see from the chart, the number of SPACs is not at an all-time high, even though it feels as such these days. In fact, however, the number of SPACs today is just a bit lower than SPACs in 2011.

What is striking, however, is the number of firms that have deSPACed. The number of deSPACss was much higher in 2020 (85 cases) compared to previous years. We’re on pace to be at least that high in 2021, with 42 deSPACs already reported through the first half of this year.

We then examined total assets reported by these firms. Figure 2, below, shows total assets for SPACs and the resulting firms after a deSPAC transaction.

So if we take Figures 1 and 2 together, we can see that while there were more SPACs in 2011 and 2012 than there are today, those SPACs didn’t have much in total assets. Today’s SPACs have total assets north of $190 billion.

Although there was a high number of SPACs in 2011 and 2012, their total assets did not add up to much. With the more recent increase in the number of SPACs, we see a substantial increase in total assets reaching a total of $190 billion. Total assets for firms after de-SPACing (shown using the left-side axis in Figure 2) also increased dramatically, to $34 billion.

Of course, $34 billion in deSPACed assets is still a lot less than the $190 billion in assets SPAC firms have in their coffers. So presumably we’re going to see a lot more of that money flow into merger deals and deSPAC transactions, as the SPACs come under pressure to put all that money to work.

Thursday, July 22, 2021

We have one more post about SPACs today to explore the final phase of existence for these firms: what happens to a special purpose acquisition company after it acquires an operating company. Or, more simply — where do SPACs go after they die?

A fair number of them go into the software and tech sectors, apparently.

The crack Calcbench research team examined 135 SPACs to see what operating businesses they acquired, and what the balance sheets of those resulting firms looked like. Of those 135 firms, 22 “de-SPACed” into prepackaged software businesses and another 16 went into computer processing and data preparation.

Following a SPAC firm into the operating company beyond isn’t easy, because once the SPAC acquires the target, it ceases to exist. No longer do you have a ticker symbol or other standard identifier that would let an analyst follow the SPAC from its prior form into the new one.

But as a matter of standard procedure, Calcbench does assign a unique identifier to every registrant in our database, SPACs included. So we can follow along and see which operating companies today were SPACs in the past. By examining the resulting firm’s new SIC code, we can see which industries were most popular with SPACs as the SPACs acquired their way into operating company status.

Figure 1, below, is the breakdown for the 135 SPACs we studied. As you can see, the picture quickly gets messy. After prepackaged software, business services, and computer processing, most other industries have only a handful of SPACs entering their lines of work.

Where the Money Goes

We were also curious to see how de-SPAC transactions work in specific instances. So we looked at Diamond Eagle Acquisition Corp., which acquired both online sports betting company DraftKings ($DKNG) and sports betting technology firm SBTech at the same time in April 2020.

Prior to the acquisitions, Diamond Eagle had about $400 million in its coffers to make an acquisition. Executives there struck a deal to acquire DraftKings and SBTech at the end of 2019, and part of the deal included several institutional investors pumping another $304 million into the resulting public company in exchange for stock. That’s known as a PIPE deal (private investment in public equity) and they’re a common part of de-SPAC transactions.

The accounting for de-SPAC transactions, however, is tricky. Essentially, accounting rules treat DraftKings as the acquiring firm, which scooped up both Diamond Eagle and SBTech. So there is no purchase price allocation one can examine to see what the SPAC paid for DraftKings.

Rather, Diamond Eagle and the PIPE investors pumped a total of $704 million into DraftKings and SBTech, and the resulting public company had $1.82 billion in cash on the balance sheet at the end of 2020. (Up from only $76.5 million in 2019.)

On the other hand, DraftKings also acquired that other business, SBTech — and we do have a purchase price allocation for that one. If you look at the Business Combinations disclosure that DraftKings included in its 10-K from May 3, you find this:

In other words, DraftKings (or Diamond Eagle and its PIPE investors, depending on your point of view) paid $977 million to acquire SBTech, and $538 million of that sum (55 percent) went to goodwill.

You can conduct similar research yourself using our Interactive Disclosures page to research business combinations, with some assistance from the Company in Detail page to analyze the balance sheet.

And if you want more information about tracing SPACs from their pre-acquisition life to post-acquisition existence as a new operating company, using our Calcbench identifier, just drop us a line at and we’re happy to help you out.

Monday, July 19, 2021

Editor’s note: Calcbench recently published a column from Jason Apollo Voss on analyzing EPS and price-to-earnings metrics. Allison Kays, assistant professor of accounting at Emory University, wrote the following rebuttal. We welcome her feedback and post her analysis in its entirety.

By Allison Kays, PhD CPA

In his July 6 column titled, “Is it Really Earnings, or Just Financial Engineering?” Jason Apollo Voss makes the important point that readers of financial statements always need to think critically when interpreting ratios. After starting with ratio analysis, one should dig deeper into a firm’s financial statements to determine why a ratio increased or decreased over time or is higher or lower than a competing firm’s ratio.

Voss’s column  focuses on earnings per share (EPS) and its susceptibility to manipulation  by managers. I wholeheartedly agree and would even go so far as to say that on its own, EPS is a completely useless ratio. Which is especially interesting since EPS is the only ratio that is explicitly defined by U.S. GAAP and required to be reported within a firm’s financial statements.

The reason that EPS is useless on its own is because a firm’s number of common shares outstanding is arbitrary. Two firms of the same size (similar assets and revenue), profitability, and level of common equity funding can have completely different numbers of common shares outstanding. That will result in the two firms reporting completely different EPS ratios. This is because the number of shares outstanding is a measure of how many slices we cut the pie into (which is, of course, arbitrary) rather than a measure of how big the pie is.

To make EPS a more informative metric, it is often compared to the price of a share of a firm’s common stock in a price-to-earnings ratio:

The great thing about the P/E ratio is that both the numerator and the denominator are per share numbers; that allows the fraction to become independent of the number of shares outstanding. To further emphasize this fact, the ratio can also be calculated at the firm level (rather than per share):

In his column, Voss argues that the latter version of the ratio is superior to the former version. It’s important to realize, however, that the two ratios are identical. That can be proven with a simple proof:

Dividing by a fraction is the same as multiplying by its reciprocal:

This proof begs the question: why does Voss’s calculation differ from a traditional P/E ratio when he applies it to S&P 500 companies?

The answer lies in the details. As I mentioned before, EPS is the only ratio explicitly defined by U.S. GAAP and reported on a firm’s financial statements. U.S. GAAP defines EPS as:

My guess is that the difference in Voss’s ratios lies in using the number of shares outstanding at year-end rather than the weighted average number of shares outstanding in the traditional calculation. (A footnote: Very few firms have preferred dividends, but this adjustment could also make a difference in your calculation. It is important to subtract out preferred dividends as that portion of income is not earned by common shareholders.)

The weighted average number of shares outstanding calculates the average shares outstanding over the course of the year, weighted by the length of time the shares are outstanding.

One might argue that since price is a year-end number, we should use the number of shares outstanding at year-end. That’s perfectly fine as long as you understand the choice you are making and its implications.

The reason that U.S. GAAP requires the use of a weighted average is because earnings are earned over a period of time. To make the numerator and the denominator comparable, the weighted average number of shares outstanding is designed to capture the common equity funding available over the same period of time.

The logic here is that when a firm issues more shares, it receives more funding — funding which will likely be used to buy income-producing assets which increases the firm’s income earning ability. On the other hand, if a firm buys back stock, it uses assets to buy that stock back, which makes the firm smaller and reduces the firm’s ability to earn income. (Another footnote: Even if the company uses new funding to pay off debt (or uses debt to fund a share buyback), interest expense will go down (up) which will increase (decrease) net income.)

If the shares are issued or bought back halfway through the year, the company’s ability to earn income is only affected for half of the year. Thus, the denominator takes this effect into account by weighting the shares outstanding accordingly. (One more footnote: This method also makes it harder for a manager to make a last minute manipulation of EPS. If the manager buys back shares right at year end to inflate EPS, there will be very little weight on this reduction to shares outstanding as it only existed for 1/365 days of the year.)

Voss finds that the S&P 500’s P/E ratio is consistently higher when calculated with the number of shares outstanding at year-end rather than using the weighted average. This suggests that on average, firms have more shares outstanding at year-end than over the course of the year.

Lastly, in Part II of Voss’column, he argues that comparing growth in net income over time versus growth in EPS over time is a measure of the level of managerial manipulation of EPS.  It’s important, howevever, also to consider the relationship I describe above: if a company issues more shares, it receives more capital. If it receives more capital, it should use that capital to invest in incom- producing assets, which should produce more income.

Thus, you would expect a company with growing shares outstanding also to have growing income, because the firm is growing. If you look at growth in net income you are measuring growth without considering the amount of funding provided by equity holders.

Voss shows that Google’s net income is growing more quickly than its EPS. This comparison suggests that the company is not using its new funding as efficiently. Voss also shows that Apple’s net income is growing more slowly than its EPS. This comparison suggests that even though the company is buying back shares (spending money on a nonproductive investment) it is still able to grow its business. The key is to understand why the ratio changes, by looking at changes in both the numerator and denominator rather than making any assumptions.

In conclusion, there is not one right way to define any ratio. The internet is full of different definitions of the same ratio. That said, it’s also important to understand the different choices and their implications so that the ratios can be properly interpreted.

A reply from Jason Voss: I love this, and that the author took the time to poke holes in my thinking! As financial due-diligence professionals it is important that we constantly be on a quest to get better. I think that Dr. Kays’ post helps all of us improve our understanding of financial statements, and that is a very good thing. Well done.

Did you know that you can do a few simple things to use text analytics in Calcbench?  Of course you know about the search functions of our website which allow you to search subsections of documents like various disclosures, aka footnotes.  You can pinpoint search only disclosures that you want, so you could, for example, look at a handful of Fair Value disclosures for a subset of banks and ignore the rest of the document.  

Today, we are going to extend the concept of disclosure search by using our Excel Add-In to look at text from Earnings Press Releases.  The spreadsheet here allows you to pinpoint search for a term within an Earnings Press Release and count the number of instances of the item.  

Specifically, this case searches a press release for the Frequency of the word “Inflation”.  You can also compare the frequency of the term to the document that appeared a year ago.  If that appeals to you.  In the spreadsheet, please notice that in ConAgra’s Earnings press release (from 7/13/21)  the word inflation appeared 16 times (in the first 32.7 K characters of the 8-K, Item 9.01 document).  

For other document sections that you might want to use, see this list.

As a Calcbench user, you can certainly make this spreadsheet better or if you are really into working with text analytics, use our API to connect to the data repository yourself and write your own ( ahem… BETTER) version of the tool.  

Thanks again and enjoy the earnings season!

Wednesday, July 14, 2021

Pepsico ($PEP) filed its latest quarterly report this week, and we were skimming through the disclosures when something interesting caught our eye: the company listed a trio of acquisitions it had made in the last year.

That Pepsi makes acquisitions isn’t news; the company has anywhere from $15 billion to $20 billion in revenue every quarter and sits on $92 billion in total assets. Of course a firm that size can make plenty of acquisitions, including some plenty large ones.

In this latest report, however, Pepsi provided the purchase price allocation for all three deals — with quite a bit of variety among them.

First, let’s list the acquisitions themselves:

  • Pioneer Foods, a food and beverage company in South Africa, acquired in March 2020 for roughly $1.2 billion;
  • Be & Cheery, a large online snack company in China, acquired in June 2020 for roughly $700 million;
  • Rockstar, an energy drink manufacturer headquartered in New York, acquired in April 2020 for $3.85 billion in cash and another $880 million pending in contingent consideration, for a total price of $4.73 billion.

How did Pepsico allocate those deals? See Figure 1, below, for the disclosure details:

For Rockstar, the energy company, 48 percent of the deal’s total value was tied up in goodwill. For Pioneer Foods, 45 percent was assigned to goodwill. For Be & Cheery, it was 44 percent.

More interesting was that Rockstar’s deal had much less value assigned to physical stuff such as inventories and property, plant & equipment. That accounted for only 1.2 percent of Rockstar’s deal, versus 49.5 percent at Pioneer and 15 percent at Be & Cheery.

The other notable item here is that $2.4 billion paid to Rockstar for non-amortizable intangible assets. What’s that all about?

Honestly, we’re not quite sure. In theory, such assets would be any intangible asset with a perpetual life — say, distribution or franchise agreements with no expiration date. In Pepsi’s disclosures, we had a harder time figuring out exactly what that $2.4 billion is paying for. (Or the $309 million in the Be & Cheery deal, for that matter.)

The narrative disclosures under the purchase price allocation table only talk about goodwill value, and where each acquisition’s goodwill will be allocated among Pepsico’s various operating units. Then we jumped over to the firm’s disclosures about goodwill and intangible assets. That disclosure mentions “other indefinite-lived intangible assets,” which did increase from $17.61 billion in December 2020 to $17.74 billion as of June 2021 — but we still have no clear sense of what those assets actually are, and the year-over-year total increase doesn’t add up to what was reported in the acquisitions section anyway.

To be clear, we are not suggesting any shenanigans in Pepsico’s reporting. We merely point out that the details are important, and Calcbench has the detailed data that can let you, the analyst, ask better questions so you can get better answers.

We spoke with Don Pagach, Professor of Accounting and Director of Research for Enterprise Risk Management Initiative at North Carolina State University; Adjunct Professor at Duke University. 

Both North Carolina State University and Duke University are clients of Calcbench. Lucky us!

Tell us about your work as director of research for the Enterprise Risk Management initiative. 

The Enterprise Risk Management Initiative provides thought leadership around risk practices and their integration with strategy and corporate governance. As part of my research, I go into Business Risk Factors and look at Item 1A [of the 10-K]. For me, it’s interesting to see how the first business risk has changed over time. It’s also interesting to see how companies display information. Take Disney, for example. A little over a year ago, before the pandemic, Disney was focused on general economic conditions. Now, the first risk listed focuses on COVID. I like to see how companies display business risk information, what information is boilerplate, and what information is new. 

Another area I like to explore is how boards oversee risk. I spend a lot of time in proxy statements, looking at how companies handle risk. What I find easy with Calcbench is that I can get all the information on one screen. I can see the board oversight language and get insight into who’s responsible, and how risks are reported to the board. 

How do you use Calcbench for teaching? 

I teach both basic and more advanced accounting courses. In my Financial Statement Analysis course, we look at data to see how consistently companies report over time. I use Calcbench in the classroom to share timely and relevant examples, and to show all the financials in one place. What I like is that Calcbench shows what a company actually reports, not what is fed through a template. 

Students in the Financial Statement Analysis course use Calcbench for their final project,  to analyze financial statements of a company of their choice. With Calcbench, students are able to look at a company’s historical data. They are also able to compare performance to a set of competitors. If there are no direct competitors, students can create their own competitor set. 

In my Financial Accounting course, we go deeper into the footnotes to look at information such as non-controlling interest. The drill-down into financial statements is a nice feature. Students can go into the notes directly as opposed to scrolling through a 10-K document. 

How can we further help academics? 

The webinars and video tutorials are useful. There’s a lot of info in there. I would like to see more videos on how to use the various data sets.

Thursday, July 8, 2021

Manufacturing services business Jabil Inc. ($JBL) filed its latest quarterly report the other week, and we were intrigued to see that in the footnotes Jabil also discloses numerous key performance metrics to help investors see how tight of a ship management runs.

You can often find KPIs in the Management Discussion & Analysis section of the filing, and that’s where we found the numbers for Jabil. The company discloses five KPIs, as shown in Figure 1, below.

As you can see, underneath the KPI numbers Jabil also includes a description of how each metric is calculated. That’s in accordance with SEC rules, which say that a company can report a wide range of metrics so long as the firm (a) explains how the metric was produced; and (b) calculates and reports the metric consistently from quarter to quarter.

We call out Jabil’s reporting of KPIs just to remind everyone that Calcbench also lets you find a wide range of performance metrics even when a firm doesn’t report those KPIs directly — because the most important KPIs are based on specific GAAP disclosures, and Calcbench has those underlying data points, which means we can calculate various KPIs, liquidity ratios, and related metrics for you.

Finding the KPIs

You can find those numbers in several ways.

Our Multi-Company page allows you to search KPIs for one or more firms, by entering the name of the KPI in our standardized metrics field on the left side of your screen. For example, we searched “Days Payable Outstanding” for Jabil’s second quarter numbers, and received a result of 81.03. That matches the 81 days that Jabil reported for its quarter ending Feb. 28, 2021 almost exactly.

You can also then trace that KPI number to see how Calcbench arrived at it. (We always like to show our work around here.) Figure 2, below, shows how we found the 81.03 number for Jabil.

One point to note is that the exact wording that one firm uses to describe a KPI might differ from other firms, or from what Calcbench itself tracks. For example, Jabil uses “Days in Accounts Payable” for “Days Payable Outstanding,” but the formula to calculate them is the same.

So from time to time you may need to confirm that the KPI a firm reports in the footnotes is indeed the same KPI we calculate automatically. You can do that by double-checking what the firm says in the footnotes and comparing it to our number via the Trace feature. Investopedia is also a great resource if you want to see what goes into a KPI and other names it might be called.

You can also search for KPIs and other ratios using our Bulk Data page, which is sometimes the better choice if you want to research a large number of firms across long periods.

If you visit that page and scroll to the bottom, you’ll see a long list of KPIs that Calcbench can track. See Figure 3, below.

Just define the number of companies you want to search, across what periods of time, at the top of the page. Then check off the relevant KPIs listed in Figure 3 here, and hit Export. That’s all there is to it; you’ll get an Excel spreadsheet with the results in a few minutes.

By Jason Apollo Voss, CFA

Investors almost always have an opinion about the overall valuation level of financial markets. Differences in these opinions, of course, lead to different preferences for bids and asks — and hence, prices.

Markets are not necessarily rational; it’s just that the tug of war among investors disagreeing on valuations is more likely to lead to accurate pricing than not. One extreme view of markets is that prices are objectively determined, and an informationally efficient evaluation of the performance of businesses.

But what if these different opinions about the overall price of financial markets are based on a measure — the price-earnings ratio — that's susceptible to the subjective manipulation of businesses themselves, via financial engineering?

This leads me to ask the question: Are reported numbers really earnings, or just financial engineering?

Specifically, I’m talking about the ability of companies to control their total shares outstanding through issuance of more shares of stock and options and more importantly, via share buybacks. In short, chief financial officers have an easy ability to alter their firms’ shares outstanding. Which, to some extent, makes their earnings per share (EPS) a less than objective measure of performance.

It comes down to simple math. When you decrease the shares outstanding through a buyback, you magically manufacture higher EPS. CFOs can also probably create a higher valuation, assuming the P/E ratio increases or remains the same.

Therefore, investors need a more “financial engineering-free” P/E number to get a truer sense of valuation. This calculation turns out to be straightforward and is easy to calculate, as follows:

In other words, market capitalization divided by net income is our alternative measure. Yes, shares outstanding remains in the numerator. But it is completely absent in the denominator, which is where financial engineering has its biggest effect in manipulating the appearance of business performance.

Our P/E-Alt Measure in Action, Part I

What is the effect of financial engineering on a major index like the S&P 500? Here is what P/EAlt looks like for the S&P 500 since 2010. Row 1 is the traditional P/E measure, and Row 4 is P/E-Alt.

As you can see, for every year except 2010, the alternative P/E is much higher, meaning that the valuation is much richer for these businesses than initially appears to be the case. In other words, via financial engineering, companies are managing their EPS through share buybacks.

Typically this results in a pat on the back from investors, because companies make their earnings numbers. Firms also look more attractive as stocks because, on average, they appear to be less expensive.

On average, the difference in the two measures of P/E is 9.4 percent.  If we omit 2020’s outlier value of 39.8 percent, the average is still 6.4 percent. This effect is considerable and it helps to highlight two important things:

  1. The amount of manipulation of earnings per share. Said another way, business performance is consistently 6.4 percent worse than it appears.
  2. Just how rich valuations are for the S&P 500, because investors are willing to pay more for these companies than may be warranted by their actual profit performance.

At least we now have a more objective, more financial engineering-free measure of valuations.

Our P/E-Alt Measure in Action, Part II

But wait,  there’s more! Because companies can fudge their shares outstanding rather effortlessly, it also means that investors should not only look at the change in growth of EPS, but also at the change in growth of net income.

The difference between these two figures is also another way of examining the effect of financial engineering on a business.

Let’s use the same two companies I used in my last guest article for Calcbench where I compared Google ($GOOG) and Apple ($AAPL) to one another:

As you can see, Google’s net income has grown faster than its earnings per share: 16.8 percent compound annual growth rate in net income versus 16.1 percent for EPS. This means that Google issued shares at a rate faster than net income. We can also conclude because net income growth exceeds EPS growth, minimal financial engineering is taking place. Additionally, it’s encouraging to see the two figures so close to each other (16.8 percent and 16.1 percent), from a “we are not trying to fool you” standpoint.

In contrast, Apple’s EPS has a compound annual growth rate of 19.7 percent while its net income has a compound annual growth rate of 15.1 percent. In other words, its EPS has grown 30.4 percent faster than its net income. We may safely conclude that Apple is engaged in a much higher level of financial engineering than Google, based on the figures above.


When evaluating a company’s performance, it’s tempting to use earnings per share, or operating income per share, or EBITDA per share, and so on. But because companies have high levels of flexibility in controlling their total shares outstanding, investors need measures of performance that excise the effects of financial engineering as much as possible. In turn, this means we get a truer sense of performance and ultimately, valuation. Yes!

Editor’s note: If you want to conduct your own analysis along the lines of what Voss outlines here, Calcbench has created an Excel template you can download and use at home.

One detail: Voss accounts for stock splits manually, which are important in his examples. Our template allows the user to enter a stock split factor and have the calculation work for their case. If there is no split, the factor defaults to 1, making the template work.

We keep rolling today with our in-depth examination of SPACs and their related disclosure issues, with a look at one issue that’s made a lot of news lately: the wave of restatements that roiled SPACs earlier this year.

The broad strokes of the story are as follows. Back in April, the Securities and Exchange Commission published guidance warning SPACs (special purpose acquisition companies) that they may have been recording certain line-items incorrectly.

Specifically, the SEC said, many SPACS had been recording the warrants and FPAs they often issue to investors as equity, when the proper accounting treatment is to record those instruments as liabilities.

This is a rather complicated and arcane branch of accounting, so people shouldn’t assume that SPACs were doing this with nefarious intent. Still, the numbers involved are also large enough that for a firm to correct the reporting, it has to restate prior financials — which SPACs have been doing, in large numbers, for the last three months.

That wave of restatements also led to a big drop in the appetite among investors for investing in SPACs. According to an article in the Wall Street Journal recounting this whole predicament, the money raised by SPACs coming to market plummeted from $35 billion in March to only $3 billion in April, and monthly totals didn’t crack $4 billion May or June either.

Meanwhile, restatements shot up from 80 in all of 2020 to 330 so far this year. That’s the most since 2010, and this year still has six more months to go.

So what can Calcbench tell you about a SPAC’s restatements? Lots.

Looking for Restatement Data

Let’s go back to Pershing Square Tontine Holdings ($PSTH), the $4 billion SPAC led by billionaire investor Bill Ackman, which we first examined in Part II of our SPAC-tacular series. How would an analyst quickly find the particulars of Pershing’s restatement?

First, call up the SPAC in question using our Company-in-Detail page. You’ll see the company’s most recent financial statements, along with a series of tabs running above that display. Click on the option that says “Revisions.”

That will take you to a table that lists the SPAC’s recent filings. Any filings that have been revised will include a small + icon next to the relevant period. See Figure 1, below. The important parts are noted in blue.

Right away we can see that on May 24 Pershing restated its 10-K filing from earlier this year, and that the restatement included 14 adjustments.

Exactly what were those adjustments? Click on the + icon to the left there. That will expand the page to show each revision made by amount, line item, and date. See Figure 2, below.

Now we’re getting to the good stuff. For example, we can see that liabilities ballooned from $57.8 million in the original 10-K filing, to $1.114 billion in the restated version. That makes sense; the SEC’s notice had told firms to report all those warrants as liabilities, after all. (Note that in the Revisions column you can see the exact date of the original filing and the subsequent restatement, too.)

The restatement also increased Pershing’s net loss from $1.4 million to $954.8 million; and cut shareholder equity, too. Again, one would expect those changes given the nature of the accounting issue that Pershing had to restate.

Some SPACs have had more extensive restatements than others. Apollo Strategic Growth Capital ($APSG), which reported $818 million in total assets for Q1 2021, made a boatload of revisions across numerous periods this year— including 39 revisions made to its 10-K. See Figure 3, below:

The above are only a fraction of the revisions Apollo made to its 10-K. And they’re not to be confused with the other revisions Apollo also made to its 10-Q filing from mid-June, either.

Calcbench can’t speculate on what this restatement wave means for SPACs over the long term. Perhaps it’s only a temporary pause while everyone adjusts to the new numbers on the balance sheet; maybe other pressures that have nothing to do with warrants and GAAP accounting rules will quell SPAC mania anyway.

Our point is only that if you need to see exactly what a SPAC has been doing, or revising, we have all the data you need in just a few keystrokes.

Today our series on SPACs (special purpose acquisition companies) looks at perhaps the most important question of all. Where do they spend the gobs of money they raise?

After all, remember the natural lifecycle of SPACs. They go public first, raising cash from investors in an IPO; and acquire an operating business later, where both entities are then reborn as a publicly traded operating firm.

Moreover, SPACs generally have 18 to 24 months to find their acquisition target and “de-SPAC” into that merged operating business. If the SPAC can’t close a deal within that window, it must (you may want to start breathing into a paper bag here) give the money back to investors.

So we wondered: how can one find those IPO dates and merger timelines? And how can we find details about any de-SPAC mergers that have happened so far?

IPO Dates and Deal Deadlines

Let’s start with finding IPO dates and time horizons to close deals. As an example, we’ll use Khosla Ventures Acquisition Corp. ($KVSA), a SPAC ultimately managed by venture capital titan Vinod Khosla, co-founder of Sun Microsystems and head of Khosla Ventures.

First, find the filings for Khosla Ventures Acquisition in the Calcbench Interactive Disclosure database, and specifically pull up the Description of Business Operations disclosures. (That will always be the place to start when researching any SPAC.)

There, we can see that the Khosla SPAC was founded on Jan. 15, 2021. Four paragraphs down, one can also find that Khosla went public on March 8. That IPO generated proceeds of $345 million.

Next, we wanted to know how long Khosla had to put that money to work. So we just did a simple text search for “months.” Sure enough, several paragraphs further down we found this:

If the company is unable to complete a business combination within 24 months from the closing of the Initial Public Offering (the “Combination Period”), the company will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares...

That’s our answer. Khosla has until March 8, 2023 to consummate a merger with an operating company out there somewhere. When researching your own SPACs, you may also want to search for “years” or “18”, “24”, “two years” or similar terms. That should bring you to the detail you want to find.

Acquisition Disclosures

OK, so the clock is ticking for Khosla to close a deal. Then we noticed that in addition to its Q1 2021 filings, Khosla also filed an 8-K on June 9. Had these folks already found a target?


The 8-K filing announced that Khosla Ventures Acquisition had struck a merger deal with Valo Health, a drug discovery startup in Boston using artificial intelligence to do… um, something with pharmaceutical research. We’re just financial data geeks here.

The deal values Valo at $2.8 billion, and is expected to close sometime in the third quarter. It also involves numerous other firms investing $168.5 million in the resulting public company in a PIPE (private investment in public equity) deal, which is not uncommon to see in SPAC land.

What we don’t yet know is the purchase price allocation of this deal, since (a) it hasn’t actually happened yet; and (b) firms typically don’t disclose purchase price allocation details until several months after deal closing anyway. So we don’t know how much of Khosla Ventures’ cash will go to goodwill, tangible assets, and so forth.

Finding Details on Purchase Price Allocation

Hold up, though. We don’t know purchase price allocation here because this de-SPAC transaction is still pending. What about prior deals from other SPACs? Can one find out those numbers?

In Calcbench, yes you can.

Start by going to our Segments, Rollforwards & Breakouts database. There, you can select the “Business Combinations - Purchase Price Allocations” option from the drop-down menu at left; and from the “Choose Companies” option at the top you can screen for all firms that use SIC code 6770 — the code for SPACs. To get the maximum amount of data possible, we also checked the All History button that’s on the top right.

Figure 1, below, shows what we did and some of the results. Note the history check-box and the disclosure choice, both circled in red; and our SIC 6770 screen, flagged with a blue arrow.

The results are the purchase price allocation by type, for each transaction. That’s why the first three results all look similar; they all pertain to an acquisition completed by UPD Holding Corp. ($UPDC) in the first quarter of 2021: cash, right of use assets, and goodwill.

So UPD apparently spent $480,052 to acquire a business earlier this year, and nearly $417,000 of that sum went to goodwill. To learn the exact details of this transaction, you can then hold your cursor over one of those line items and use the world-renown Calcbench trace feature to go to the full disclosure. Which we did, and we found this:

In February of this year, UPD agreed to acquire a drug treatment business in Kentucky, Vital Behavioral Health Inc. That business consists of one outpatient treatment clinic, and one residential facility for people in addiction recovery. On May 21, UPD detailed the purchase price allocation. Almost all of the $480,000 price went to goodwill, with a smattering paid in cash and right-of-use assets.

Read the fine print, however. You can see in the narrative disclosure that neither of Vital’s two facilities had any licenses to operate as of May 21. Hmmm. Moreover, if you then jump over to the business description for UPD, you can find that the business previously operated as a brewing company, Record Street Brewing, which UPD sold at the end of 2020 before getting into the addiction recovery business.

We’ll say no more about the merits of the UPD-Vital deal. Just understand that the data is out there, and Calcbench can help you find it.

FREE Calcbench Premium
Two Week Trial

Research Financial & Accounting Data Like Never Before. More features and try our Excel add-in. Sign up now to try the Premium Suite.