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Filing Season Finds: Thursday, March 8

Mar. 12, 2018 10:00 AM ETZGNX1 Comment
David Trainer profile picture
David Trainer


  • Forget all the "earnings season" analysis you read last month. The real earnings season - annual 10-K filing season - is happening right now.
  • On day 12, analysts parsed 49 10-K filings and collected 6,142 data points. In total, they made 1,001 forensic accounting adjustments with a dollar value of $99 billion.
  • These adjustments allow us to assess a company’s true earnings and return on invested capital.

For March 7, 2018, our forensic accounting red flag comes from a pharmaceutical company with a significant hidden liability.

We pulled this highlight from yesterday’s research of 49 10-K filings, from which our Robo-Analyst technology collected 6,142 data points. Our analyst team used this data to make 1,001 forensic accounting adjustments with a dollar value of $99 billion. The adjustments were applied as follows:

  • 441 income statement adjustments with a total value of $5 billion
  • 395 balance sheet adjustments with a total value of $49 billion
  • 165 valuation adjustments with a total value of $44 billion

Figure 1: Filing Season Diligence for Wednesday, March 7th

Sources: New Constructs, LLC and company filings.

We believe this research is necessary to fulfill the Fiduciary Duty of Care. Ernst & Young’s recent white paper, “Getting ROIC Right”, demonstrates how these adjustments contribute to meaningfully superior models and metrics.

Today’s Forensic Accounting Needle in a Haystack Is for Pharmaceuticals Investors

The Robo-Analyst found an unusual item yesterday in Zogenix’s (ZGNX) 10-K.

On page 25 of the footnotes (page 95 overall), ZGNX includes a table detailing its stock option activity for 2017. At the end of 2017, the company had 3.4 million outstanding employee stock options with a weighted average exercise price of $14.41/share, down from $15.46/share at the end of 2016. Crucially, even as the exercise price of these options declined, ZGNX stock more than tripled in 2017, going from ~$12/share to over $40/share.

At the current stock price of ~$44/share, the fair value of ZGNX’s outstanding employee stock options is $78 million (5% of market cap). Investors that don’t account for these options are missing a significant source of future dilution and overvaluing the stock.

This article originally published on March 8, 2018.

Disclosure: David Trainer and Sam McBride receive no compensation to

This article was written by

David Trainer profile picture
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Comments (1)

picasso61 profile picture
I have over 14,000 text document papers I’ve got a lift to another so will help me on this project I don’t know why but yeah
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