Forget all the “earnings season” analysis you read last month. The real earnings season—annual 10-K filing season—is happening right now.
Every year in this six-week stretch from mid-February through the end of March, we parse and analyze roughly 2,000 10-Ks to update our models for companies with a 12/31 fiscal year end. Our analysts work tirelessly to uncover red flags hidden in the footnotes and make our models the best in the business.
There’s no way we could analyze so many filings in such a short time without our engineering team’s help. Using machine learning and natural language processing, we automate much of the rote work of data gathering and modeling. Our technology frees our analysts up to spend more time on the complicated and unusual data points that other firms miss.
Investors understand that analyzing all financial statements and footnotes is an essential part of the diligence needed to fulfill the fiduciary duty of care. How else can one make the necessary adjustments to assess a company’s true earnings and return on invested capital (ROIC)? Our innovation is to scale this diligence and make it easily accessible to our subscribers.
What We Accomplished Yesterday
Figure 1 shows the work our analysts did yesterday and over the entirety of this filing season so far.
Figure 1: Filing Season Diligence
Sources: New Constructs, LLC and company filings.
Yesterday, our analysts parsed 128 filings and collected 18,702 data points. In total, they made 3,174 adjustments with a dollar value of $1.1 trillion. That breaks down into:
- 1,308 income statement adjustments with a total value of $68 billion
- 1,342 balance sheet adjustments with a total value of $484 billion
- 524 valuation adjustments with a total value of $580 billion
In particular, analyst Peter Apockotos found an unusual item yesterday in MGM Resorts (MGM: $26/share) 10-K.
In 2016, MGM affiliate CityCenter sold off the Crystals shopping center, for which MGM recorded a gain on sale of $401 million. This information was disclosed in a footnote on page 40 of MGM’s 10-K. MGM’s reported net income increased by $1.5 billion in 2016. Removing this gain on sale, along with other non-operating items, reveals that MGM’s after-tax operating profit (NOPAT) only increased by $300 million. These adjustments allow us to calculate the true, normal, and recurring profits of the business.
This article originally published here on March 3, 2017.
Disclosure: David Trainer, Peter Apockotos, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.
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