This report provides case studies for exactly how we perform the Detailed Reconciliation of Net Income to NOPAT for the following companies:

  • Cesca Therapeutics (THMO)
  • Real Goods Solar Inc. (RGSE)
  • Navidea Biopharmaceuticals (NAVB)
  • ExpresSpa Group Inc. (XSPA)
  • Outlook Therapeutics (OTLK)
  • Exelixis Inc. (EXEL)
  • Newell Brands (NWL)
  • General Motors (GM)
  • Fortive Corporation (FTV)

These case studies show the original source data used to perform all of our calculations and adjustments. They allow clients to audit our work and serve as supporting documentation for the backtest dataset.

We provide original values and locations for all data.

Figure 1 shows the detailed reconciliation for Cesca Therapeutics (THMO). The other case studies are in this excel file:

Download the Case Studies

GAAP earnings don’t tell the whole story of a company’s profits. They are based on accounting rules originally designed for debt investors, not equity investors, and are often manipulated by companies to manage earnings.

When we calculate net operating profit after-tax (NOPAT), we make numerous adjustments to close accounting loopholes and ensure apples-to-apples comparability across thousands of companies. 

Leveraging our Robo-Analyst technology, we analyze all the disclosures in the footnotes and MD&A of financial filings to remove non-core and non-recurring items. By doing so, we create a “novel dataset” of adjustments that we use to calculate a more accurate[1] measure of a firm’s profitability.

Clients can audit all of the unusual items used in our calculations in the Marked-Up Filings section of each of our Company Valuation models. We are 100% transparent about what goes into our research because we want investors to trust our work and see how much goes into building the best earnings quality and valuation models.

Figure 1 shows the detailed adjustments we make to reconcile Cesca Therapeutics’s (THMO) 2018 net income to NOPAT, along with the location each item was found in its 2018 10-K.

Figure 1: THMO GAAP Net Income to NOPAT Reconciliation – 2018 10-K

Sources: New Constructs, LLC and company filings

Figure 1: THMO GAAP Net Income to NOPAT Reconciliation – 2018 10-K (continued)

Sources: New Constructs, LLC and company filings

For more details on each of the adjustments in Figure 1, along with how you can access our net income to NOPAT dataset, click here.

This article originally published on February 27, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that our “novel dataset” is superior to “Street Earnings” from Refinitiv’s IBES, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).

Click here to download a PDF of this report.

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