Grade: C — Some Red Flags, Investigate
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-06, FY ended December 31, 2025) + Yahoo Finance
Auditor: KPMG LLP — Unqualified opinion
One-line verdict: Halliburton passes 15 of 18 screening checks with one fail and one watch item. Cash of $2.2 billion covers only 27% of $8.1 billion debt, and write-offs surged 4,725% year-over-year. The write-off spike demands investigation -- while it may reflect the announced divestiture of a portion of the chemical business, a 47x increase in asset impairments is the largest in this peer group. CFFO/NI of 2.28 is healthy, the M-Score of -2.69 passes, and Debt/EBITDA of 2.5x is the highest in this peer group but still below distress levels. Halliburton is a services company, not an E&P, so its risk profile differs fundamentally from the other companies in this analysis.
| Metric | Result |
|---|---|
| Red Flags | **0** |
| Watch Items | **1** (write-offs up 4,725% YoY) |
| Checks Completed | **18/18** |
| Beneish M-Score | **-2.69** (clean; threshold is -2.22) |
| Piotroski F-Score | **1.08** (moderate) |
| Altman Z-Score | **4.81** (safe zone) |
| Auditor | KPMG LLP — Unqualified opinion |
The World's Largest Oilfield Services Provider
Halliburton is "one of the world's largest providers of products and services to the energy industry." Per the 10-K, the company has "over 46,000 employees, representing 146 nationalities in more than 70 countries." Halliburton operates through two segments: Completion and Production (C&P) and Drilling and Evaluation (D&E).
Per the filing, 2025 highlights include: "Our total revenue decreased 3% in 2025 as compared to 2024. Our International revenue decreased 2% and our North America revenue decreased 6%." The C&P segment delivered 17% operating margins and D&E delivered 15%.
Notably, the filing discloses: "We have made a strategic decision to market for sale a portion of our chemical business. We expect the sale to be completed in the first half of 2026." This divestiture likely explains the significant write-off increase.
Profitability: Headline Numbers
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Revenue | $23.0B | $22.9B | $22.2B | -3.3% |
| Net Income | $2.6B | $2.5B | $1.3B | -48.0% |
| Gross Margin | 18.9% | 18.7% | 15.7% | -3.0pp compression |
| Operating Cash Flow | $3.5B | $3.9B | $2.9B | -24.3% |
| Free Cash Flow | $2.1B | $2.4B | $1.7B | -29.2% |
Net income dropped 48% from $2.5B to $1.3B despite only a 3% revenue decline. This outsized earnings impact reflects the oilfield services operating leverage -- small revenue changes drive large profit swings when margins are thin (15.7% gross margin).
Per the filing: "Financial: Our total revenue decreased 3% in 2025 as compared to 2024." International revenue decreased 2% and North America decreased 6%, reflecting lower rig counts and customer spending discipline across E&P companies.
Halliburton returned "$1.6 billion of capital to shareholders through dividends and share repurchases, which is consistent with our capital returns framework." The company targets returning "over 50% of annual free cash flow to shareholders."
Cash Flow: Services Company Dynamics
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $3.5B | $3.9B | $2.9B |
| Net Income | $2.6B | $2.5B | $1.3B |
| **CFFO / Net Income** | **1.35** | **1.56** | **2.28** |
| CapEx | $1.4B | $1.5B | $1.2B |
| Free Cash Flow | $2.1B | $2.4B | $1.7B |
CFFO/NI of 2.28 is elevated because net income was compressed by the write-offs, while cash flow remained more stable. CapEx of $1.2B represents "approximately 6% of revenue, which matched our target." The 2026 target is "about $1.1 billion" -- indicating continued capital discipline.
FCF of $1.7B against $1.3B net income (FCF/NI = 1.30) means free cash flow exceeds reported earnings, a positive quality signal.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 81 days, flat YoY |
| A2 | AR vs Revenue Growth | PASS | AR -3.4% vs revenue -3.3% |
| A3 | Revenue vs CFFO | PASS | Revenue -3.3%, CFFO -24.3% |
DSO of 81 days is high relative to E&P companies but normal for oilfield services, where payment terms are typically 60-90 days. AR and revenue declined at nearly identical rates (-3.4% vs -3.3%), confirming consistent collection patterns.
CFFO declined 24.3% vs revenue decline of 3.3%. This outsized cash flow decline reflects the operating leverage in services -- as revenue drops, margins compress disproportionately, reducing cash generation.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | PASS | Inventory -2.1% vs COGS +0.3% |
| B2 | CapEx vs Revenue | PASS | CapEx -13.0% vs revenue -3.3% |
| B3 | SG&A Ratio | PASS | SG&A/Gross Profit = 6.9% |
| B4 | Gross Margin | PASS | 15.7%, -3.0pp YoY |
SG&A/Gross Profit at 6.9% is excellent for a company with 46,000+ employees globally. Inventory declined 2% against flat COGS, indicating efficient inventory management. Gross margin compression from 18.7% to 15.7% reflects the activity downturn, particularly in North America.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 2.28 |
| C2 | Free Cash Flow | PASS | FCF $1.7B, FCF/NI = 1.30 |
| C3 | Accruals Ratio | PASS | -6.6%, clean |
| C4 | Cash vs Debt | FAIL | Cash $2.2B covers 27% of $8.1B debt |
C4 context: Halliburton carries $8.1B in debt against $2.2B cash (27% coverage). Debt/EBITDA of 2.5x is the highest in this peer group but still below the 4.0x threshold for concern. Per the filing, the company "retired $382 million of our 3.8% notes due November 2025." The services business generates stable cash flow ($2.9B CFFO) that supports the debt load, though a prolonged activity downturn could stress coverage.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | PASS | Goodwill $2.9B = 28% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 2.5x |
| D3 | Soft Asset Growth | PASS | Other assets +15.0% vs revenue -3.3% |
| D4 | Asset Impairment | WATCH | Write-offs up 4,725% YoY |
D4 context: This is the most significant flag in this report. Write-offs surging 47x year-over-year demands explanation. Per the filing, Halliburton announced the planned sale of "a portion of our chemical business" (Multi-Chem product service line) expected to close in the first half of 2026. Asset impairments associated with marking this business unit to fair value (less costs to sell) likely explain the write-off spike.
Additionally, Halliburton has goodwill of $2.9B representing 28% of equity -- the highest goodwill concentration in this peer group. While not at the 50% threshold, any further impairments to goodwill could materially impact equity.
Acquisition & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill +4% YoY |
| F1 | Beneish M-Score | PASS | -2.69 (below -2.22) |
Key Risks from the 10-K
1. Activity Downturn in North America
North America revenue declined 6% in 2025. Per the filing: "North America: Maximize value by, among other things, utilizing our Zeus IQ electric fracturing platform, our iCruise rotary steerable systems and LOGIX automation." Technology differentiation is the strategy to offset rig count declines, but if E&P companies continue to reduce drilling activity, HAL's most profitable market shrinks.
2. Chemical Business Divestiture
The Multi-Chem business sale creates transition risk and likely explains the 4,725% write-off spike. The divestiture "is expected to be completed in the first half of 2026" -- if the sale process encounters difficulties, additional write-downs could follow.
3. International Revenue Dependence
With 70+ countries and 146 nationalities, Halliburton has significant exposure to geopolitical risk, currency volatility, and sovereign credit. International revenue declined 2% in 2025, and continued OPEC+ production cuts reduce demand for HAL's services in key Middle East and Africa markets.
4. Operating Leverage Risk
Halliburton's thin 15.7% gross margin means small revenue changes create disproportionate profit impact. Net income fell 48% on only a 3% revenue decline. In a severe downturn, this operating leverage could turn FCF negative.
5. Debt Load Relative to Services Peers
At Debt/EBITDA of 2.5x, Halliburton carries more leverage than typical for a services company. The company retired $382M in notes in 2025 and targets continued deleveraging, but the $8.1B debt load constrains financial flexibility during cyclical downturns.
Summary
Grade: C. Halliburton warrants investigation due to the 4,725% write-off surge and higher leverage than peers.
The write-off spike is the most striking data point. While the Multi-Chem divestiture likely explains it, a 47x increase in any impairment metric demands scrutiny. Goodwill at 28% of equity adds another layer of balance sheet risk.
On the positive side: CFFO/NI of 2.28, FCF exceeding net income (1.30x), M-Score of -2.69, and disciplined CapEx at 6% of revenue all indicate operational quality. The company targets >50% of FCF returned to shareholders and maintained $1.6B in capital returns.
Halliburton is fundamentally different from the E&P companies in this group -- it is a services company whose fortunes depend on its customers' capital spending decisions. In a world of declining rig counts and E&P capital discipline, this creates structural headwinds.
**Disclaimer**: This report is based on Halliburton's FY2025 10-K filed with SEC EDGAR on February 6, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: KPMG LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025