Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-03-18) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Clean opinion (unqualified)
One-line verdict: Best Buy is a $41.7B revenue consumer electronics retailer with stable operations but a deteriorating balance sheet. Cash of $1.7B covers only 42% of $4.1B in debt, triggering the sole red flag. The company generated $1.96B in CFFO (1.84x net income) and $1.3B in FCF, demonstrating strong cash conversion. However, $171M in goodwill impairments and $190M in restructuring charges in FY2026 signal ongoing operational headwinds. The M-Score of -2.82 is clean, and the SG&A/Gross Profit ratio of 81.3% — while a watch item — reflects the high-cost nature of operating 1,000+ physical retail locations in a challenging environment.
| Metric | Result |
|---|---|
| Red Flags | **1** |
| Watch Items | **1** |
| Checks Completed | **17/18** (1 N/A) |
| Beneish M-Score | **-2.82** (below -2.22 — clean) |
| F-Score (Fraud Probability) | **0.84** (0.31% probability) |
| Altman Z-Score | **1.88** (grey zone) |
| Auditor | Deloitte & Touche LLP — Unqualified opinion |
| Fiscal Year | 2026 (ended January 31, 2026) |
| Report Date | 2026-04-05 |
The Business: Technology Retailer Under Pressure
The 10-K states: "We are driven by our purpose to enrich lives through technology and our vision to personalize and humanize technology solutions for every stage of life." Best Buy operates approximately 1,000 stores across the U.S. and Canada, selling computing, mobile phones, consumer electronics, appliances, entertainment, and services.
The filing describes the competitive landscape: retailers must contend with "online and offline competitors, including Amazon, Walmart, Target, Apple, Samsung, and other retailers."
Profitability: Stabilizing After Post-Pandemic Decline
| Metric | FY2023 | FY2024 | FY2025 | FY2026 | Trend |
|---|---|---|---|---|---|
| Revenue | $46,298M | $43,452M | $41,528M | $41,691M | +0.4% YoY |
| Gross Profit | $9,912M | $9,603M | $9,385M | $9,373M | -0.1% |
| Gross Margin | 21.4% | 22.1% | 22.6% | **22.5%** | Stable |
| Net Income | $1,419M | $1,241M | $927M | $1,069M | +15% |
| Net Margin | 3.1% | 2.9% | 2.2% | **2.6%** | Recovering |
| ROE | 50.8% | 40.6% | 33.0% | **36.1%** | Recovering |
Revenue has finally stabilized after a multi-year post-pandemic decline from $46.3B to $41.7B. Net income recovered 15% to $1.07B. Gross margin is stable at 22.5%. The filing notes $190M in restructuring charges and $171M in goodwill and intangible asset impairments impacted results.
Cash Flow: Solid Quality
| Metric | FY2023 | FY2024 | FY2025 | FY2026 |
|---|---|---|---|---|
| Operating Cash Flow | $1,824M | $1,470M | $2,098M | $1,962M |
| Net Income | $1,419M | $1,241M | $927M | $1,069M |
| **CFFO / Net Income** | **1.29** | **1.18** | **2.26** | **1.84** |
| CapEx | -$930M | -$795M | -$706M | -$704M |
| Free Cash Flow | $894M | $675M | $1,392M | $1,258M |
Cash flow quality is good. CFFO consistently exceeds net income. From the cash flow statement: depreciation and amortization of $831M, restructuring charges of $190M, and goodwill/intangible asset impairments of $171M account for the gap between CFFO and net income. Accruals ratio of -6.1% is negative and healthy.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 9 days, change -0 days YoY. Stable |
| A2 | AR vs Revenue Growth | PASS | AR -0.1% vs revenue +0.4% |
| A3 | Revenue vs CFFO | PASS | Revenue +0.4%, CFFO -6.5%. Cash follows revenue |
| B1 | Inventory vs COGS | PASS | Inventory +2.9% vs COGS +0.5%. Normal |
| B2 | CapEx vs Revenue | PASS | CapEx -0.3% vs revenue +0.4%. Normal |
| B3 | SG&A Ratio | WATCH | SG&A/Gross Profit = 81.3%, exceeds 70% |
| B4 | Gross Margin | PASS | Gross margin 22.5%, change -0.1pp. Stable |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.84. Strong cash backing |
| C2 | Free Cash Flow | PASS | FCF $1.3B, FCF/NI = 1.18 |
| C3 | Accruals Ratio | PASS | Accruals ratio = -6.1%. Negative — excellent |
| C4 | Cash vs Debt | **FAIL** | Cash $1.7B covers only 42% of debt $4.1B |
| D1 | Goodwill + Intangibles | PASS | Goodwill $790M = 27% of equity. Manageable |
| D2 | Leverage | PASS | Debt/EBITDA = 1.8x. Interest coverage 37.2x |
| D3 | Soft Asset Growth | PASS | Other assets -14.6% vs revenue +0.4%. Normal |
| D4 | Asset Impairment | N/A | No write-off data |
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill+Intangibles -20% YoY. Declining |
| F1 | Beneish M-Score | PASS | M-Score = -2.82 (< -2.22). Clean |
B3 Watch Item Context: Structural High SG&A
SG&A/Gross Profit at 81.3% exceeds the 70% threshold, but this is inherent to operating 1,000+ physical retail stores with staff, real estate, and logistics costs. Best Buy's 22.5% gross margin means it earns modest gross profit per dollar of revenue, and the physical store model consumes most of it. This ratio has been stable around this level for years.
Beneish M-Score Component Breakdown:
| Component | Value | What It Measures | Concern? |
|---|---|---|---|
| DSRI | 0.995 | Days Sales in Receivables | Normal |
| GMI | 1.005 | Gross Margin Index — essentially flat | Normal |
| AQI | 0.824 | Asset Quality Index — improving | Good |
| SGI | 1.004 | Sales Growth Index — flat | Normal |
| DEPI | 1.018 | Depreciation Index | Normal |
| SGAI | 0.992 | SG&A Index — improving | Good |
| TATA | -0.061 | Total Accruals to Assets — negative | Excellent |
| LVGI | 0.973 | Leverage Index — deleveraging | Good |
Key Risks from the 10-K
1. Consumer Spending Sensitivity
The filing warns of risks from "changes in consumer confidence and spending, a deterioration of macroeconomic conditions, and other conditions that affect consumer spending." Consumer electronics is inherently discretionary.
2. Competitive Pressure from Online Retailers
Best Buy directly competes with Amazon and other online retailers. The filing notes the challenge of "evolving consumer shopping preferences, including preferences for online shopping."
3. Impairment and Restructuring Costs
FY2026 included $171M in goodwill and intangible asset impairments and $190M in restructuring charges. The filing cites the need to "continuously evaluate our cost structure relative to our revenue" and restructure operations accordingly.
4. Technology Product Cycle Dependence
Revenue depends on "the pace and extent of innovation by manufacturers and the acceptance by consumers of new technology products," including AI-enabled devices and computing refresh cycles.
5. Supply Chain and Tariff Risks
The filing describes vulnerability to "global supply chain disruptions, foreign exchange rate fluctuations, tariffs and trade restrictions."
Key Financial Trends (4-Year)
| Metric | FY2023 | FY2024 | FY2025 | FY2026 |
|---|---|---|---|---|
| Revenue | $46,298M | $43,452M | $41,528M | $41,691M |
| Net Income | $1,419M | $1,241M | $927M | $1,069M |
| Gross Margin | 21.4% | 22.1% | 22.6% | 22.5% |
| Net Margin | 3.1% | 2.9% | 2.2% | 2.6% |
| ROE | 50.8% | 40.6% | 33.0% | 36.1% |
| CFFO | $1,824M | $1,470M | $2,098M | $1,962M |
| CFFO/NI | 1.29 | 1.18 | 2.26 | 1.84 |
| FCF | $894M | $675M | $1,392M | $1,258M |
| Cash | $1,874M | $1,447M | $1,578M | $1,738M |
| Total Debt | $3,978M | $3,982M | $4,053M | $4,133M |
Summary
Grade: F. One red flag (cash vs debt) and one watch item (high SG&A ratio).
Best Buy's earnings quality is sound. CFFO of $1.96B backs net income at 1.84x, free cash flow is positive at $1.3B, the accruals ratio is negative at -6.1%, and the M-Score of -2.82 is clean. Revenue has stabilized after a post-pandemic decline, and net income recovered 15%.
The F grade is driven by the C4 check: $1.7B cash covers only 42% of $4.1B in debt. While this is tighter than ideal, the context is manageable — Debt/EBITDA is just 1.8x and interest coverage is an excellent 37.2x. The $171M goodwill impairment and $190M restructuring charges signal that management is actively restructuring the business, which is a near-term drag but could improve future profitability.
The primary risks are macroeconomic — consumer electronics spending is discretionary, and Best Buy faces intense online competition. But the cash flow generation is real and consistent.
**Disclaimer**: This report is based on Best Buy's fiscal year 2026 10-K filed with the SEC on March 18, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade F means major red flags were detected — in this case, cash coverage of debt below threshold.