Ascent Capital Group Inc (ASCMA) – Filing Season Finds: Friday, March 10

Ascent Capital Group Inc (ASCMA) – Filing Season Finds: Friday, March 10
Sources: New Constructs, LLC and company filings.

Our latest forensic accounting red flag is from a struggling small-cap stock that only looks more dangerous the deeper you dig.

We pulled this highlight from yesterday’s research of 42 10-K filings, from which our robo-analyst technology collected 5,533 data points. Our analyst team used this data to make 965 forensic accounting adjustments with a dollar value of $108 billion. The adjustments were applied as follows:

  • 400 income statement adjustments with a total value of $7 billion
  • 412 balance sheet adjustments with a total value of $42 billion
  • 152 valuation adjustments with a total value of $60 billion

Figure 1: Filing Season Diligence

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Ascent Capital Group Inc (ASCMA)

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Today’s Forensic Accounting Needle In A Haystack Is For Consumer Discretionary Investors

Analyst Alec Estrada found an unusual item yesterday in Ascent Capital Group’s (ASCMA) 10-K.

On page 32, Ascent Capital Group revealed that the revaluation of a dealer liability in 4Q16 earned the company $7.2 million in hidden non-operating income (13% of reported operating income). Sure enough, eliminating this unusual item shows that ASCMA’s 13% increase in reported operating income was entirely artificial. Net operating profit after tax (NOPAT) was essentially flat at ~$55 million in 2016.

With $1.8 billion in total debt, ASCMA needs to grow its cash flows significantly to keep up with interest payments. Our research in the footnotes sheds a light on ASCMA’s stagnant cash flows and suggests that liquidation may be in its future.

This article originally published here on March 10, 2017.

Disclosure: David Trainer, Alec Estrada, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.

Article by Sam McBride, New Constructs

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