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.
For February 20, 2018, our forensic accounting red flag is from a hotel REIT with significant hidden non-operating income.
We pulled this highlight from yesterday’s research of 111 10-K filings, from which our Robo-Analyst technology collected 17,910 data points. Our analyst team used this data to make 2,830 forensic accounting adjustments with a dollar value of $1.3 trillion. The adjustments were applied as follows:
- 1,239 income statement adjustments with a total value of $130 billion
- 1,138 balance sheet adjustments with a total value of $478 billion
- 453 valuation adjustments with a total value of $671 billion
Tuesday was the first day of filing season. Figure 1 shows the work our analysts did yesterday. As filing season goes on, we’ll compile the total amount of work performed by our analysts over the whole period.
Figure 1: Filing Season Diligence for Tuesday, February 20th
Sources: New Constructs, LLC and company filings.
We believe this research is necessary to fulfill the Fiduciary Duty of Care.
Today’s Forensic Accounting Needle in a Haystack Is for REIT Investors
Analyst Hunter Anderson found an unusual item yesterday in Chesapeake Lodging Trust’s (CHSP) 10-K.
On page 26, CHSP disclosed a $14.3 million decrease to expenses due to the write-off an unfavorable contract liability and a settlement gain following the change in management at its Denver hotel from Marriott (MAR) to Hilton (HLT).
CHSP’s GAAP net income, which includes this non-operating item, stayed flat between 2016 and 2017. Excluding this non-operating income, along with several other adjustments, shows that CHSP’s after-tax operating profit (NOPAT) actually declined by 15%, from $111 million to $94 million.
This article originally published on February 21, 2018.
Disclosure: David Trainer, Hunter Anderson, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.
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Article by Sam McBride, New Constructs