Grade: C — Some Red Flags, Investigate
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-25, FY ended December 31, 2025) + Yahoo Finance
Auditor: KPMG LLP — Unqualified opinion (1 critical audit matter: pension projected benefit obligation)
One-line verdict: CF Industries passes most screening checks with strong cash flow generation and a clean M-Score, but goodwill plus intangibles at 61% of equity and a $25 million asset impairment charge at the Yazoo City AN facility flag structural concerns. The company generated $2.75 billion in operating cash flow on $7.08 billion net sales — a 39% cash conversion rate that is among the strongest in basic materials. CFFO/NI of 1.89 confirms profits are heavily backed by cash. The one genuine red flag is the goodwill-to-equity ratio, driven by the 2023 Waggaman ammonia plant acquisition. CapEx growth of 82.5% deserves attention but reflects planned decarbonization investments, not uncontrolled spending.
| Metric | Result |
|---|---|
| Red Flags | **1** (goodwill/equity ratio) |
| Watch Items | **2** (CapEx surge, cash-to-debt) |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.82** (clean; threshold is -2.22) |
| Z-Score | **3.82** (safe zone) |
| Auditor | KPMG LLP — serving since 1983 |
The World's Largest Ammonia Producer
CF Industries operates eight nitrogen manufacturing facilities in North America, consisting of complexes in Donaldsonville, Louisiana; Medicine Hat, Alberta; Courtright, Ontario; Yazoo City, Mississippi; Claremore, Oklahoma (Verdigris); Woodward, Oklahoma; and Waggaman, Louisiana. Per the filing: "Natural gas is the principal raw material and primary fuel source used in the ammonia production process" and "in 2025, natural gas accounted for approximately 34% of our total production costs."
The company reports five segments differentiated by product:
| Segment | FY2025 Net Sales | FY2024 Net Sales | Volume (000 tons) |
|---|---|---|---|
| Ammonia | $2,176M | $1,736M | 4,597 |
| Granular Urea | $1,781M | $1,600M | 4,109 |
| UAN | $2,161M | $1,678M | 6,947 |
| AN | $421M | $419M | 1,327 |
| Other | $545M | $503M | 2,077 |
Per the filing: total production volume was 10.12 million tons of ammonia in 2025, up from 9.80 million in 2024 and 9.50 million in 2023.
Profitability: Recovering from the 2024 Trough
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Revenue | $6,631M | $5,936M | $7,084M | Cyclical recovery |
| Net Income | $1,525M | $1,218M | $1,455M | +19% YoY |
| Gross Margin | 38.4% | 34.6% | 38.5% | Recovered |
| EPS (diluted) | $8.03 | $6.74 | $8.97 | +33% |
| Net Margin | 23.0% | 20.5% | 20.5% | Stable |
Per the filing: "Net earnings attributable to common stockholders of $1.46 billion in 2025 compared to $1.22 billion in 2024, an increase in net earnings of $237 million, or 19%. The increase in net earnings primarily reflects an increase in gross margin of $668 million." Gross margin was "$2.72 billion, $2.06 billion and $2.55 billion for the years ended December 31, 2025, 2024 and 2023, respectively."
The gross margin recovery from 34.6% to 38.5% was driven by higher average selling prices and higher sales volumes, partially offset by higher natural gas costs. The filing notes the "average daily market price of natural gas at the Henry Hub from January 1, 2026 through February 20, 2026 was $6.32 per MMBtu" — significantly higher than 2025 average, which could pressure margins going forward.
Cash Flow: Consistently Powerful
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $2,757M | $2,271M | $2,752M |
| Net Income | $1,525M | $1,218M | $1,455M |
| CFFO / NI | 1.81 | 1.86 | 1.89 |
| CapEx | $1,724M | $521M | $951M |
| Free Cash Flow | $1,033M | $1,750M | $1,801M |
Per the filing: "Cash provided by operating activities in 2025 was $2.75 billion, an increase of $481 million compared to $2.27 billion in 2024. The increase in cash flow from operations was due primarily to an increase in gross margin, driven by increased average selling prices and higher sales volume, partially offset by higher natural gas costs."
CFFO/NI consistently above 1.8x across three years — this is a business where cash collection is strong and accruals are minimal. The D&A component is substantial for a capital-intensive chemicals operation.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 23 days, stable |
| A2 | AR vs Revenue Growth | ✅ | AR growth 17.5% vs revenue growth 19.3% |
| A3 | Revenue vs CFFO | ✅ | Revenue +19.3%, CFFO +21.2% |
Revenue quality is clean across all three checks. DSO of 23 days is extremely low, reflecting the commodity nature of the products and strong collection terms.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory +22.0% vs COGS +12.4% |
| B2 | CapEx vs Revenue | ⚠️ | CapEx growth 82.5% vs revenue growth 19.3% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 13.4%, excellent |
| B4 | Gross Margin | ✅ | 38.5%, +3.8pp expansion |
B2 — CapEx surge reflects strategic investments. The filing details decarbonization projects: "At our Donaldsonville and Yazoo City complexes, our decarbonization projects are leveraging carbon capture and sequestration (CCS) to enable us to convert a portion of our existing ammonia production to low-carbon ammonia production." Additionally, CF is "constructing a greenfield low-carbon ammonia plant at our Blue Point complex." The CapEx surge is planned and strategic, not a red flag — but the magnitude is notable and execution risk exists.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 1.89. Exceptional |
| C2 | Free Cash Flow | ✅ | FCF $1.8B, FCF/NI = 1.24 |
| C3 | Accruals Ratio | ✅ | -9.2%. Negative accruals — very clean |
| C4 | Cash vs Debt | ⚠️ | Cash $2.0B covers 55% of debt $3.6B |
C4 — Moderate debt coverage. The filing states: "As of December 31, 2025, we had approximately $3.25 billion of total funded indebtedness, consisting solely of unsecured senior notes with varying maturities." With $2.0B cash and $2.75B annual operating cash flow, the debt is manageable but not negligible. The company also has $750 million in undrawn revolving credit facility.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $3.0B = 61% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 1.1x. Very healthy |
| D3 | Soft Asset Growth | ✅ | Other assets +17.6% vs revenue +19.3% |
| D4 | Asset Impairment | — | No write-off data available |
D1 — Goodwill concentration from the Waggaman acquisition. The $3.0B in goodwill and intangibles largely stems from the December 2023 acquisition of the Waggaman ammonia production facility for $1.675 billion. The filing also notes a "$25 million impairment of certain fixed assets within our North American AN asset group" at the Yazoo City facility, suggesting operations there face challenges.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | Goodwill change -1% YoY |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | ✅ | -2.82 (well below -2.22 threshold) |
All M-Score components are benign. TATA (total accruals to total assets) at -0.09 is notably negative, confirming earnings quality.
Key Risks from the 10-K
1. Natural Gas Price Volatility
Per the filing: natural gas is 34% of production costs. The Henry Hub average was $6.32/MMBtu through early 2026, significantly above 2024-2025 levels. A sustained gas price increase directly compresses gross margin, as CF cannot always pass through costs immediately.
2. Yazoo City AN Facility Impairment
The filing discloses a $25 million impairment charge at the North American AN asset group, consisting "primarily of machinery and equipment." The company also tested goodwill allocated to the North American AN reporting unit, concluding it "was not impaired." This suggests the AN business line faces structural headwinds.
3. Blue Point / Decarbonization Execution Risk
CF is constructing a "greenfield low-carbon ammonia plant at our Blue Point complex" and investing in CCS infrastructure across multiple sites. These are multi-billion dollar projects with uncertain commercial returns. The 45Q tax credit program underpins the economics — any policy change could alter the investment thesis.
4. Cyclical Commodity Exposure
Revenue dropped from $11.2B (2022) to $5.9B (2024) before recovering to $7.1B (2025). This 47% peak-to-trough swing over two years illustrates the fertilizer market's extreme cyclicality. The filing warns of "periods of industry oversupply, which impacted our financial performance."
Summary
Grade: C. Strong cash flow generation obscures a moderately leveraged balance sheet with concentration in goodwill from the Waggaman acquisition.
CF Industries generates exceptional cash flow — CFFO/NI consistently near 1.9x, FCF of $1.8B, and a clean M-Score of -2.82. The business is fundamentally sound. The C grade reflects the single red flag (goodwill at 61% of equity), combined with a CapEx surge that creates execution risk on decarbonization projects and the Yazoo City impairment signal. CF is not a company to flag for elimination — it is a company to monitor for the execution of its capital program and the direction of natural gas prices.
**Disclaimer**: This report is based on CF Industries' FY2025 10-K filed with SEC EDGAR on February 25, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: KPMG LLP (Unqualified opinion, 1 critical audit matter — pension projected benefit obligation)
Fiscal year ended: December 31, 2025