Grade: F — Goodwill Surge From Four Acquisitions
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed February 13, 2026, FY ended December 31, 2025) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Unqualified opinion, auditor since 1995 (1 critical audit matter: goodwill impairment test — $5.43B goodwill balance)
One-line verdict: Dover is a high-quality diversified industrial with genuine margin expansion amid a multi-segment transformation — but the balance sheet is in transition and the mechanical screen catches it. Consolidated revenue grew 4.5% to $8.09B (organic +1.6%, acquisitions +2.6%, FX +1.0%, divestitures -0.7%), gross margin expanded 160 basis points from 38.2% to 39.8%, and operating earnings rose 13.8% from $1,206M to $1,373M. Earnings from continuing operations fell 21.6% from $1,400M to $1,097M, but the decline is driven by the absence of the $597.8M FY2024 gain on dispositions (De-Sta-Co sale and equity method investment sale) — stripping that out, underlying earnings from continuing operations actually rose. Net earnings fell 59.4% from $2,697M to $1,094M because FY2024 also included $1,297M of discontinued operations gain (the Environmental Solutions Group sale). The "clean" comparison: underlying earnings grew meaningfully. The 18-point screen trips twice: C4 cash of $1.68B covers only 47% of $3.57B debt, and D1 goodwill of $5.43B plus intangibles of $1.76B = $7.19B = 97% of $7.41B equity. The goodwill expanded $524M on four acquisitions totaling $665M in FY2025, and PricewaterhouseCoopers identified the goodwill impairment test as the critical audit matter. Dover also executed a $500M accelerated share repurchase in November 2025 on top of regular buybacks, bringing total FY2025 buybacks to $545.8M. Altman Z of 6.46 and M-Score of -2.56 confirm the business is clean — the failing grade is the mechanical flagging of a serial acquirer's balance sheet.
| Metric | Result |
|---|---|
| Red Flags | **2** (cash-to-debt, goodwill/equity) |
| Watch Items | **1** (B2 CapEx +31.5%) |
| Checks Completed | **17/18** |
| Beneish M-Score | **-2.56** (clean) |
| Altman Z-Score | **6.46** (safe) |
A Five-Segment Industrial in Transformation
Dover operates five reportable segments:
Total organic growth of 1.6% masks significant divergence — the first three segments grew while the last two shrank. The winning segments are tied to "secular-growth-exposed end markets" that the MD&A credits for driving results.
M&A activity: "During the year ended December 31, 2025, the Company completed four business acquisitions totaling $665.3 million, net of cash acquired and inclusive of contingent consideration and measurement period adjustments." The acquisitions were concentrated in "Clean Energy & Fueling and Pumps & Process Solutions segments" — reinforcing the higher-growth segments.
Capital return: "On November 10, 2025, the Company entered into the 2025 ASR Agreement, a $500.0 million accelerated share repurchase agreement with JP Morgan to repurchase its shares under the 2025 ASR Program. The Company funded the 2025 ASR Program with cash on hand. Under the terms of the 2025 ASR Agreement, the Company paid JP Morgan $500.0 million on November 12, 2025, and on that date received initial delivery of 2,334,010 shares."
Restructuring: $78M of restructuring charges "primarily related to exit costs and headcount reductions across all segments, most notably within the Climate & Sustainability Technologies and Clean Energy & Fueling segments."
Financial Performance: Gross Margin Expansion Is the Story
From the consolidated statements of earnings (in thousands):
| Metric | FY2025 | FY2024 | FY2023 | Trend |
|---|---|---|---|---|
| Revenue | $8,092,571 | $7,745,909 | $7,684,476 | +4.5% |
| Cost of Goods and Services | $4,874,402 | $4,787,288 | $4,816,932 | +1.8% |
| Gross Profit | $3,218,169 | $2,958,621 | $2,867,544 | +8.8% |
| Gross Margin | 39.8% | 38.2% | 37.3% | +160bp |
| SG&A | $1,844,808 | $1,752,266 | $1,648,204 | +5.3% |
| Operating Earnings | $1,373,361 | $1,206,355 | $1,219,340 | +13.8% |
| Operating Margin | 17.0% | 15.6% | 15.9% | +140bp |
| Interest Expense | $109,772 | $131,171 | $131,304 | -16.3% |
| Interest Income | $(73,032) | $(37,158) | $(13,496) | +96.5% |
| Gain on Dispositions | $(4,644) | $(597,798) | $0 | (big FY24 gain) |
| Other Income, net | $(32,987) | $(46,876) | $(21,468) | -29.6% |
| Earnings Before Taxes | $1,374,252 | $1,757,016 | $1,123,000 | -21.8% |
| Earnings from Cont. Ops | $1,097,429 | $1,399,968 | $943,864 | -21.6% |
| Net Earnings | $1,093,956 | $2,697,126 | $1,056,828 | -59.4% |
| Diluted EPS (Cont. Ops) | $7.97 | $10.09 | $6.71 | -21.0% |
The 140bp operating margin expansion is real and clean: gross margin grew 160bp while SG&A grew 20bp as percent of revenue. The MD&A attributes the gross margin expansion to "favorable price versus cost dynamics, productivity initiatives, favorable portfolio mix and benefits from restructuring actions." Pricing was up ~1.9% in FY2025.
Interest income surged 96.5% from $37.2M to $73.0M: "higher interest income generated by the investment of proceeds from the sale of Environmental Solutions Group ('ESG') held in highly liquid short-term investments." Dover parked the ESG cash in short-term investments while waiting to deploy it — that cash is now being spent on acquisitions and buybacks.
Net interest (interest expense minus interest income) fell 60.9% from $94.0M to $36.7M — a $57.3M tailwind, or roughly 3% of operating earnings.
The headline decline is almost entirely non-operational: FY2024 had $597.8M of gains on dispositions from the De-Sta-Co sale and an equity method investment sale; FY2025 had $4.6M. Plus FY2024 had $1,297M of gains from discontinued operations (the ESG sale) versus a $3.5M loss in FY2025. The "comparable" earnings trajectory is actually positive.
Cash Flow: Disposition-Adjusted View
| Metric | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Net Earnings | $1,094 | $2,697 | $1,057 |
| Earnings (Loss) from Disc. Ops | $3.5 | $(1,297) | $(113) |
| D&A | $380 | $338 | $305 |
| Gain on Dispositions | $(4.6) | $(597.8) | $0 |
| Operating Cash Flow | $1,334 | $748 | $1,336 |
| CapEx (est.) | $(221) | $(167) | $(183) |
| Free Cash Flow | $1,113 | $581 | $1,153 |
| **CFFO / Net Income** | **1.22** | **0.28** | **1.26** |
The FY2024 CFFO/NI of 0.28 is an artifact of the $1.3B non-cash gain on ESG discontinued operations — that gain goes through net earnings but creates no CFFO. Adjusted, CFFO has been consistently above net income from continuing operations. FY2025 FCF of $1.11B is up 92% from FY2024's $580.8M but roughly flat versus FY2023's $1.15B.
Balance Sheet: Goodwill Expansion Drives the Ratio
From the consolidated balance sheets (in thousands):
| Item | Dec 31, 2025 | Dec 31, 2024 |
|---|---|---|
| Cash & Equivalents | $1,676,808 | $1,844,877 |
| Receivables (net) | $1,371,352 | $1,354,225 |
| Inventories (net) | $1,272,784 | $1,144,838 |
| Total Current Assets | $4,506,940 | $4,484,497 |
| Property, Plant & Equipment | $1,119,623 | $987,924 |
| Goodwill | $5,430,038 | $4,905,702 |
| Intangible Assets (net) | $1,759,616 | $1,580,854 |
| Other Assets | $606,206 | $550,183 |
| Total Assets | $13,422,423 | $12,509,160 |
| ST Borrowings & Current LTD | $706,677 | $400,056 |
| Accounts Payable | $875,678 | $848,006 |
| Long-term Debt | $2,621,295 | $2,529,346 |
| Total Debt | $3,328 (approx) | $2,929 (approx) |
| Retained Earnings | $14,220,582 | $13,409,633 |
| Treasury Stock | $(7,751,380) | $(7,280,578) |
| Total Stockholders' Equity | $7,405,206 | $6,953,996 |
Goodwill jumped $524M ($4,906M → $5,430M) as Dover completed four acquisitions. Intangibles rose $179M. Together, goodwill + intangibles grew $703M in one year, to $7.19B — 97% of $7.41B equity.
Cash declined $168M ($1,845M → $1,677M) — even though FY2025 generated $1.33B of operating cash flow, the company spent $665M on acquisitions and $546M on share repurchases.
Total debt rose from $2,929M to $3,328M, with the $306.6M increase in the current portion indicating a maturity that needs refinancing in FY2026.
Retained earnings of $14.2B is enormous relative to $7.4B equity because treasury stock of $7.75B offsets much of it. Dover has been a prolific repurchaser — 125M treasury shares at ~$62/share average cost.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 62 days, -2 days YoY |
| A2 | AR vs Revenue Growth | PASS | AR +1.3% vs revenue +4.5% |
| A3 | Revenue vs CFFO | PASS | Revenue +4.5%, CFFO +78.2% (FY24 was distorted) |
Revenue quality is clean. AR grew modestly while revenue grew faster — the opposite of a channel-stuffing pattern.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | PASS | Inventory +11.2% vs COGS +1.8% |
| B2 | CapEx vs Revenue | **WATCH** | CapEx growth 31.5% is >2x revenue growth 4.5% |
| B3 | SG&A Ratio | PASS | SG&A/Gross Profit = 57.3% |
| B4 | Gross Margin | PASS | 39.8%, +1.6pp — expanding |
B1 would be a watch in isolation: inventory grew 11.2% on 1.8% COGS growth — a meaningful build. The MD&A doesn't directly explain the inventory build; likely it reflects acquisition inventory consolidation plus preparation for FY2026 shipments. Worth watching next quarter.
B2 watch: CapEx grew 31.5% vs 4.5% revenue growth. Dover is investing in capacity ahead of expected demand — this is capital deployment toward growth, not margin pressure.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.22 |
| C2 | Free Cash Flow | PASS | FCF $1.1B, FCF/NI = 1.02 |
| C3 | Accruals Ratio | PASS | -1.8%, low accruals |
| C4 | Cash vs Debt | **FAIL** | Cash $1.7B covers only 47% of debt $3.6B |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | **FAIL** | $7.2B = 97% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 1.9x |
| D3 | Soft Asset Growth | PASS | Other assets +10.2% vs revenue +4.5% |
| D4 | Asset Impairment | N/A | No write-off data |
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill+Intangibles +11% YoY (below 20% threshold) |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | PASS | -2.56 (threshold: < -2.22) |
Key Risks from the 10-K
1. Recession and End-Market Cyclicality
"In the past, our operations have been exposed to volatility due to changes in general economic conditions or consumer preferences, recessions or adverse conditions in the markets we serve. In the future, similar changes could adversely impact overall sales, operating results (including potential impairment charges for goodwill or other long-lived assets) and cash flows." Engineered Products already declined 6.6% and Climate & Sustainability Technologies declined 2.1% in FY2025 — partial evidence the cycle is biting certain end markets.
2. International Exposure
"Approximately 46% of our revenues for both 2025 and 2024 were derived outside the United States." International operations expose Dover to "political, social and economic instability and disruptions; government import and export controls, economic sanctions, embargoes or trade restrictions; the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures." Organic revenue in Europe declined 0.9% in FY2025; Other Americas declined 4.3%.
3. Labor and Skilled Personnel
"We have a number of collective bargaining units in the U.S. and various collective labor arrangements outside the U.S. We are subject to potential work stoppages, union and works council campaigns and other labor disputes." Increases in labor costs drove the SG&A increase.
4. Cybersecurity
"We depend on our own and third party information systems, including cloud-based systems and managed service providers, to store, process and protect our information and support our business activities… these systems have been and are expected to continue to be the target of cyber attacks."
5. Goodwill Impairment Testing — PwC's Critical Audit Matter
PricewaterhouseCoopers identified goodwill impairment testing as the critical audit matter. PwC explains: "the Company's consolidated goodwill balance was $5.43 billion as of December 31, 2025… the significant judgment by management when developing the fair value estimate of the reporting units and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumption related to forecasted revenue growth rates for certain reporting units." With Engineered Products organic revenue declining 6.6%, the CAM is likely directed at reporting units within that segment where forecasted growth would need to reverse the current trend.
6. International Operations and Geopolitical Risks
War in Ukraine, Middle East conflicts, trade policy disruptions — these affect both supply and demand for Dover's diversified industrial portfolio.
Summary
Grade: F. Two mechanical fails (C4 cash/debt 47%, D1 goodwill 97% of equity) plus one watch (B2 CapEx +31.5%). The failing grade reflects the acquisition-driven balance sheet — but the operating business is genuinely improving.
Dover's FY2025 operating performance is strong and clean: revenue +4.5%, gross margin expanded 160 basis points, operating earnings +13.8%, three of five segments showing organic growth. Strip out the non-comparable FY2024 gains on dispositions ($598M) and discontinued operations ($1.3B ESG sale), and the underlying earnings trajectory is positive. CFFO/NI of 1.22 and clean M-Score of -2.56 confirm the accounting.
The F grade comes entirely from balance-sheet mechanics: four acquisitions for $665M drove goodwill up $524M to $5.43B, pushing goodwill + intangibles to 97% of equity. The company simultaneously executed a $500M accelerated share repurchase, drawing cash down from $1.85B to $1.68B. D2 (Debt/EBITDA at 1.9x) is comfortable and Altman Z of 6.46 is in the safe zone.
The CAM (goodwill impairment testing) is the one item to monitor closely: PwC flagged "forecasted revenue growth rates for certain reporting units" — code for saying some of Dover's smaller reporting units have forecasts that require significant judgment to evaluate. With Engineered Products organic revenue declining 6.6% and Climate & Sustainability Technologies declining 2.1%, those segments could be candidates for impairment if trends don't reverse.
The key question for FY2026: Does the 140bp operating margin expansion continue as price-versus-cost dynamics remain favorable, and does the Engineered Products segment (6.6% organic decline) find a bottom?
**Disclaimer**: This report is based on Dover Corporation's FY2025 10-K filed with SEC EDGAR on February 13, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP (Unqualified opinion, auditor since 1995, 1 critical audit matter — goodwill impairment test, $5.43B goodwill balance)
Fiscal year ended: December 31, 2025