For February 20, our forensic accounting needles in a haystack come from a chemicals company with significant hidden non-operating expenses.
Analyst Hunter Anderson found two unusual items in The Chemours Company’s (CC) 2018 10-K.
On page 60, CC disclosed $91 million in non-recurring legal and transaction costs.
Combined, these items decreased pre-tax reported earnings by $126 million (11% of reported pre-tax earnings). Without these adjustments, CC grew GAAP net income at an impressive 33% in 2018. However, when we remove these non-operating items, we see that CC grew net operating profit after tax (NOPAT) by 47%. Without analyzing the footnotes, investors would significantly understate CC’s true profits.
The Power of the Robo-Analyst
We analyzed 89 10-K filings yesterday, from which our Robo-Analyst technology collected 9,139 data points. Our analyst team used this data to make 1,599 forensic accounting adjustments with a dollar value of $1.3 trillion. The adjustments were applied as follows:
- 649 income statement adjustments with a total value of $78 billion
- 675 balance sheet adjustments with a total value of $624 billion
- 275 valuation adjustments with a total value of $551 billion
We believe this research is necessary to fulfill the Fiduciary Duty of Care. Ernst & Young’s white paper, “Getting ROIC Right”, demonstrates how these adjustments contribute to meaningfully superior models and metrics.
This article originally published on February 20, 2019.
Disclosure: David Trainer, Hunter Anderson, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.
 Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.