Grade: B — Generally Healthy, Minor Concerns
Framework: Schilit *Financial Shenanigans* + forensic accounting principles (exchange/market infrastructure analysis)
Data: SEC EDGAR 10-K (Filed 2026-02-26, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion (1 Critical Audit Matter)
One-line verdict: CME Group is the world's largest derivatives exchange, generating $4.1B in net income on $6.5B in revenue — an extraordinary 62.5% net margin. Record average daily volume of 28.1 million contracts drove revenue growth of 6.4%. The one red flag — goodwill and intangibles at 105% of equity — is a legacy of the 2008 NYMEX acquisition and the 2018 NEX Group acquisition. Goodwill has been flat at $10.5B for three consecutive years, showing zero incremental acquisition risk. CFFO/NI of 1.05 confirms earnings are fully cash-backed. Operating margin stands at 64.9%. The M-Score of -2.56 is clean. This is a near-monopoly franchise generating returns on par with the best software companies.
| Metric | Result |
|---|---|
| Red Flags | **1** (D1: Goodwill+Intangibles 105% of equity — legacy acquisitions) |
| Watch Items | **1** (A2: AR growing faster than revenue) |
| Checks Completed | **17/18** (1 N/A) |
| Beneish M-Score | **-2.56** (clean; threshold -2.22) |
| Altman Z-Score | **N/A** (not applicable to financial exchanges) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
Note on Z-Score: The Altman Z-Score is not applicable to financial exchanges. CME's balance sheet includes substantial clearing house deposits and performance bonds that distort the model's inputs. The M-Score is shown because CME's income statement structure allows meaningful component calculation.
The World's Largest Derivatives Exchange
Per the 10-K, CME Group operates "the world's leading derivatives marketplace" offering trading across interest rates, equity indexes, foreign exchange (FX), agricultural commodities, energy, and metals. The company also operates BrokerTec (cash and repo fixed income trading) and EBS (spot and OTC FX trading).
The filing states: "In 2025, CME Group futures and options had record average daily volume (ADV) of 28.1 million contracts. This included a third consecutive year of volume records in our interest rates asset class, as well as volume records for our agricultural, energy and metals commodities."
One clearing firm represented 12% of clearing and transaction fees revenue — a modest concentration. The clearing and transaction fees included $283 million in regulatory-pass-through fees.
Profitability: A Money Printing Machine
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Total Revenue | $5.6B | $6.1B | $6.5B | +6.4% YoY |
| Net Income | $3.2B | $3.5B | $4.1B | +14.3% |
| Gross Margin | 85.1% | 86.1% | 86.1% | Ultra-high, stable |
| Net Margin | 57.8% | 57.5% | 62.5% | Expanding |
| ROE | 12.1% | 13.3% | 14.2% | Improving |
| Operating Margin | — | — | 64.9% | Exceptional |
An 86.1% gross margin and 64.9% operating margin put CME in the same category as the highest-margin software companies. Net margin of 62.5% means more than six out of every ten dollars of revenue fall to the bottom line. This is the structural advantage of running a regulated monopoly on derivatives clearing.
SG&A/Gross Profit of just 2.7% — the lowest ratio we've seen — reflects that CME's revenue scales on platform utilization without proportional cost increases.
Cash Flow: Consistent Conversion
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $3.5B | $3.7B | $4.3B |
| Net Income | $3.2B | $3.5B | $4.1B |
| **CFFO / Net Income** | **1.07** | **1.05** | **1.05** |
| Free Cash Flow | $3.4B | $3.6B | $4.2B |
| Accruals Ratio | — | — | **-0.1%** |
CFFO/NI of 1.05 is textbook quality — earnings are slightly more than fully backed by cash. The near-zero accruals ratio of -0.1% means virtually no gap between reported earnings and cash economics. Free cash flow of $4.2B with minimal CapEx requirements makes CME a pure cash generation machine.
Cash of $4.5B covers total debt of $3.4B with room to spare. Leverage is 0.6x Debt/EBITDA — negligible.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 36 days, +2 days YoY. Minimal |
| A2 | AR vs Revenue Growth | ⚠️ | AR +11.5% vs revenue +6.4% |
| A3 | Revenue vs CFFO | ✅ | Revenue +6.4%, CFFO +15.9% |
A2 watch item. Accounts receivable grew 11.5% against 6.4% revenue growth. In exchange businesses, AR often reflects timing of fee settlements with clearing members — typically collected within 30-60 days. DSO remains low at 36 days, so this is a timing issue rather than a credit quality concern.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | No inventory |
| B2 | CapEx vs Revenue | ✅ | CapEx -11.2% vs revenue +6.4% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 2.7%, excellent |
| B4 | Gross Margin | ✅ | 86.1%, stable |
CapEx declining while revenue grows is a strong positive — the platform is generating more revenue without requiring additional investment.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 1.05 |
| C2 | Free Cash Flow | ✅ | FCF $4.2B, FCF/NI = 1.03 |
| C3 | Accruals Ratio | ✅ | -0.1%. Near zero |
| C4 | Cash vs Debt | ✅ | Cash $4.5B covers debt $3.4B |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $30.3B = 105% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 0.6x |
| D3 | Soft Asset Growth | ✅ | Other assets -32.2% vs revenue +6.4% |
| D4 | Asset Impairment | — | N/A |
D1 is the only red flag. Goodwill of $10.5B has been perfectly flat across FY2023, FY2024, and FY2025. The intangible assets total approximately $19.8B (including exchange and clearing registrations with indefinite useful lives). These intangibles represent the licenses and regulatory authorizations that *are* CME's competitive moat — they have real economic value.
Per the filing, goodwill is tested for impairment "on a quarterly basis and whenever events or circumstances indicate that its carrying value may not be recoverable." The quarterly frequency (rather than the more common annual testing) suggests management and auditors take this seriously.
CME's strategy is clear from the filing: "acquisition centers on expanding, innovating and scaling our core offerings and increasing participation from customers." But the flat goodwill shows no recent acquisitions, and Debt/EBITDA of 0.6x means the leverage needed to support this goodwill is trivial.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | Goodwill -1% YoY |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | ✅ | -2.56 (clean) |
Key Risks from the 10-K
1. Volume Cyclicality
CME's revenue correlates with market volatility and trading activity. The filing warns about "changes in our rate per contract due to shifts in the mix of the products traded, the trading venue and the mix of customers." A prolonged low-volatility environment would compress revenue.
2. Regulatory Risk
As a systemically important financial market utility, CME faces extensive regulation. The filing warns about "decreases in revenue from our market data as a result of decreased demand or changes to regulations in various jurisdictions."
3. Concentration in Interest Rate Products
Interest rate derivatives are CME's largest product category by volume. The filing notes a "third consecutive year of volume records in our interest rates asset class." If rate volatility normalizes, the volume tailwind diminishes.
Summary
Grade: B. A near-monopoly franchise with pristine cash flows, flagged only for legacy goodwill.
CME Group operates one of the most profitable business models in global finance: 62.5% net margin, 86.1% gross margin, 64.9% operating margin. Record volumes of 28.1 million contracts per day. Free cash flow of $4.2B. CFFO/NI of 1.05 with near-zero accruals. Debt/EBITDA of 0.6x. M-Score of -2.56, clean.
The sole red flag — goodwill and intangibles at 105% of equity — reflects the 2008 NYMEX and 2018 NEX acquisitions that gave CME its current market position. Goodwill has been flat at $10.5B for three years. These are not red flags for earnings manipulation — they are the balance sheet expression of franchise value that generates $4B+ in annual free cash flow.
The override from C to B reflects the stability of goodwill (zero surge), the strength of cash conversion, the extraordinary margins, and the trivial leverage.
**Disclaimer**: This report is based on CME Group's FY2025 10-K filed with SEC EDGAR on February 26, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion, 1 Critical Audit Matter)
Fiscal year ended: December 31, 2025