Filing season is upon us: The time of year when majority of publicly traded companies release their 10-K annual reports. During this time, we get a complete, audited view of a company's financials along with footnotes and the Management Discussion & Analysis.
These sections contain items that are imperative to obtaining a true picture of the cash flows a company generates. In 2012 for example, JP Morgan (NYSE:JPM) revealed on page 73 of its 10-K that it received $1.1 billion from a bankruptcy settlement. This was then bundled with other items and included as operating income despite being a one-time settlement and certainly non-recurring.
Our analysts scrutinize every page of over 3000 10-Ks to find instances in which accounting adjustments need to be made to each company's GAAP numbers. We adjust for over 30 items that can artificially inflate or deflate earnings.
The only way to truly value a company is to know the true recurring cash flows generated by the company. We do this for you by calculating net operating profit after tax, or "NOPAT."
This week, we've created a list of the companies (who have already filed for 2014) with the largest adjustments to GAAP net income. These adjustments allow you to see the recurring cash flows generated by the business, and not what management wants you to see.