Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-19) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Clean opinion (1 critical audit matter: rate regulation)
One-line verdict: Evergy is a mid-cap Kansas-Missouri electric utility serving approximately 1.7 million customers — a straightforward regulated business with steady fundamentals. Revenue grew a modest 2.0% to $6.0B, net income dipped slightly from $874M to $856M, and EPS was essentially flat. The F grade is driven by standard utility structural features — negative FCF for three years, near-zero cash ($20M) against $15.2B debt, and leverage at 5.6x EBITDA. One anomaly: AR growth of 270% in FY2025 triggered a watch flag, but this appears to be a reclassification rather than a real receivables problem, as DSO remained flat at 1 day (reflecting Evergy's pass-through billing structure). The company is actively pursuing data center load growth and investing in PISA (plant-in-service accounting) to smooth rate base inclusion. No genuine earnings quality concerns.
| Metric | Result |
|---|---|
| Red Flags | **3** (FCF negative, cash vs debt, FCF after acquisitions negative) |
| Watch Items | **2** (AR growth anomaly, leverage 5.6x) |
| Checks Completed | **15/18** |
| Beneish M-Score | **N/A** (insufficient data) |
| Altman Z-Score | **0.67** (distress zone) |
Business Overview
From the 10-K: Evergy "serves approximately 1.7 million customers located in Kansas and Missouri. Customers include approximately 1.5 million residences" along with commercial, industrial, and municipal accounts. The company operates through three utility subsidiaries: Evergy Kansas Central (headquartered in Topeka), Evergy Metro, and Evergy Missouri West.
Evergy Kansas Central "is an integrated, regulated electric utility that engages in the generation, transmission, distribution and sale of electricity. Evergy Kansas Central serves approximately 751,000 customers located in central and eastern Kansas." The company has approximately 15,800 MW of owned generating capacity and renewable power purchase agreements.
Evergy's operations are "considered one reporting unit for assessment of impairment, as management assesses financial performance and allocates resources on a consolidated basis." The company carries $2.3B in goodwill from the 2018 merger of Great Plains Energy and Westar Energy.
Financial Summary (from 10-K)
| Line Item | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Total Revenue | $5,962M | $5,847M | $5,508M |
| Gross Profit | $3,116M | $3,035M | $2,766M |
| Net Income | $856M | $874M | $731M |
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $5.86B | $5.51B | $5.85B | $5.96B | Stable |
| Net Income | $753M | $731M | $874M | $856M | Flat-stable |
| Gross Margin | 44.9% | 50.2% | 51.9% | 52.3% | Expanding |
| Net Margin | 12.8% | 13.3% | 14.9% | 14.4% | Stable |
| ROE | 7.9% | 7.6% | 8.8% | 8.4% | Modest |
Evergy is a predictable, low-growth utility. Revenue has been flat around $5.5-6.0B for four years. Net income has ranged from $731M to $874M. Gross margin has steadily expanded from 44.9% to 52.3% as energy procurement costs have declined. The ROE of 8.4% is below the typical allowed ROE of 9.5-10.5%.
Cash Flow
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Operating Cash Flow | $1.80B | $1.98B | $1.98B | $2.05B |
| CFFO / NI | 2.39 | 2.71 | 2.27 | 2.39 |
| Free Cash Flow | $(365M) | $(354M) | $(353M) | $(752M) |
| Cash on Hand | $25M | $28M | $22M | $20M |
CFFO is remarkably stable at approximately $2.0B per year, consistently backing net income at 2.3-2.7x. But CapEx grew 19.7% in FY2025, widening the FCF deficit from $(353M) to $(752M). The CapEx acceleration reflects grid investment and preparation for potential data center load growth.
From the 10-K: "uncertainties related to projected rapid growth in electricity demand driven primarily by data centers and other large load customers and the related requirement for significant capital investment." Evergy is positioning for growth but taking on significant capital commitments before load materializes.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO | Pass | 1 day, flat YoY |
| A2 | AR vs Revenue | **WATCH** | AR growth 270% vs revenue growth 2.0% |
| A3 | Revenue vs CFFO | Pass | Revenue +2.0%, CFFO +3.1%. Cash follows revenue |
A2: The 270% AR growth is an accounting anomaly, not a revenue quality problem. DSO remained at 1 day, meaning the absolute AR balance is tiny relative to revenue — this is a pass-through billing structure where most electricity costs flow to customers. A small reclassification or balance sheet timing difference can produce large percentage swings on a small base. The critical question — is revenue backed by cash? — is answered by A3: CFFO grew 3.1%, in line with revenue.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory | Pass | Inventory -4.4% vs COGS +1.2%. Normal |
| B2 | CapEx | Pass | CapEx growth 19.7% vs revenue +2.0% |
| B3 | SG&A Ratio | N/A | Utility cost structure |
| B4 | Gross Margin | Pass | 52.3%, +0.4pp. Stable |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs NI | Pass | Ratio 2.39. Profits backed by cash |
| C2 | FCF | **FAIL** | FCF negative for 3+ years |
| C3 | Accruals | Pass | -3.5%. Low accruals |
| C4 | Cash vs Debt | **FAIL** | Cash $20M covers 0% of $15.2B debt |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | Pass | $2.3B = 23% of equity. Manageable |
| D2 | Leverage | **WATCH** | Debt/EBITDA = 5.6x |
| D3 | Soft Assets | Pass | Other assets +2.8% vs revenue +2.0% |
| D4 | Impairment | N/A | No write-off data |
D1: The $2.3B goodwill from the 2018 Great Plains/Westar merger is stable and represents 23% of equity. From the 10-K: "Evergy's consolidated operations are considered one reporting unit for assessment of impairment." No impairment indicators identified.
Acquisition & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer | **FAIL** | FCF after acquisitions negative for 3 years |
| E2 | Goodwill Surge | Pass | Goodwill flat |
| F1 | M-Score | N/A | Insufficient data |
PISA: Plant-in-Service Accounting
A noteworthy regulatory mechanism from the 10-K: "Effective in July 2024, Evergy Kansas Central and Evergy Metro elected into a plant-in service accounting (PISA) provision permitted by Kansas law, allowing each to defer to a regulatory asset 90% of depreciation expense and associated return on investment associated with qualifying plants additions." The PISA mechanism allows Evergy to defer costs but caps annual rate increases at 1.5% in Kansas and 2.5% in Missouri.
This means Evergy is building up deferred regulatory assets that will be included in rate base during future proceedings — essentially smoothing the cost impact of infrastructure investment over time.
Key Risks from Item 1A
1. Data center demand uncertainty. The 10-K explicitly warns of "uncertainties related to projected rapid growth in electricity demand driven primarily by data centers and other large load customers." If data center demand fails to materialize, Evergy will have over-invested in generation and grid infrastructure.
2. Cybersecurity and physical threats. The 10-K flags "impact of physical and cybersecurity breaches, criminal activity, terrorist attacks, acts of war and other disruptions to the Evergy Companies' facilities or information technology infrastructure."
3. Goodwill impairment. With $2.3B of goodwill from the 2018 merger, if the fair value of the reporting unit declines below its carrying amount, impairment charges could be material.
Summary
| # | Check | Result |
|---|---|---|
| A1-A3 | Revenue Quality | Pass-Watch-Pass |
| B1-B4 | Expense Quality | Pass-Pass-N/A-Pass |
| C1-C4 | Cash Flow Quality | Pass-Fail-Pass-Fail |
| D1-D4 | Balance Sheet | Pass-Watch-Pass-N/A |
| E1-E2 | M&A Risk | Fail-Pass |
| F1 | Beneish M-Score | N/A |
Grade: F — structural false positive with no genuine earnings quality concerns.
Evergy is a boring, well-run utility with predictable earnings, strong CFFO/NI ratios, expanding gross margins, and minimal goodwill relative to equity. Every red flag is structural to the regulated utility model. The AR anomaly (A2) is a percentage distortion on a tiny base, not a receivables quality problem. The only real question is whether Evergy's data center growth bet pays off — but that is a strategic risk, not an earnings quality concern.
**Disclaimer**: This report is based on Evergy's FY2025 10-K (SEC EDGAR, filed 2026-02-19) and public financial data. This is NOT investment advice.
Data: SEC EDGAR 10-K (Filed 2026-02-19) + Yahoo Finance
Auditor: Deloitte & Touche LLP (Unqualified opinion, 1 critical audit matter)