Interactive Brokers Group (IBKR) 2025 Earnings Quality Report

Grade: B — Generally Healthy, Minor Concerns

Framework: Broker-dealer specific analysis + Schilit principles (certain checks structural false positives for brokerages)

Data: SEC EDGAR 10-K/A (Filed 2026-03-31, Amendment No. 1) + Yahoo Finance

Auditor: Deloitte & Touche LLP — Unqualified opinion

One-line verdict: Interactive Brokers is one of the most unusual financial companies on public markets — a technology-driven electronic brokerage with virtually zero debt ($19M), zero goodwill, gross margins of 89.8%, and CFFO/NI ratio of 16.1x. The extreme CFFO multiple is not a red flag but a structural characteristic: as a broker-dealer, changes in customer margin balances, securities lending, and clearing deposits flow through operating cash flow, amplifying it far above net income. Revenue grew 10% to $10.2B, net income was $984M, and ROE was 18.3%. The company has no leverage, no acquired intangibles, and essentially no balance sheet risk from goodwill. The screening engine flags DSO surge (706 days) and AR outpacing revenue as fails, and CFFO >> NI as a watch — all are brokerage model artifacts. The only genuine concern is the low net margin (9.6%), which reflects that most of IBKR's revenue is interest on customer margin balances that it partially passes through to customers.

Important note on broker-dealer grading: The screening engine assigns Grade D based on DSO and AR flags. For broker-dealers, "receivables" are primarily customer margin receivables and securities lending receivables — these are interest-earning assets, not uncollected trade receivables. DSO is meaningless in this context. CFFO of $15.8B vs NI of $984M reflects the massive flow of customer deposits and margin balances through the operating section of the cash flow statement. We override to B based on broker-specific analysis. The Beneish M-Score and Altman Z-Score are not applicable to broker-dealers — these models were designed for non-financial companies.

Financial Performance

Revenue has grown consistently from $4.2B to $10.2B over four years — a 2.4x increase driven by rising interest rates (boosting net interest income on margin balances), growing customer accounts, and expanding trading volumes.

The gross margin of 89.8% is extraordinary. Net margin at 9.6% appears low but reflects the pass-through nature of interest income — IBKR earns the spread between the rate it earns on customer cash/margin and what it pays to customers.

The CFFO/NI Ratio: Why 16.1x is Not a Red Flag

The CFFO/NI ratio of 16.1x would be alarming for any non-financial company. For a broker-dealer, it is structural:

FCF of $15.7B essentially equals CFFO because CapEx ($67M) is negligible for an electronic brokerage.

Balance Sheet: The Cleanest in Financial Services

This may be the cleanest balance sheet of any major financial services company:

The 18-Point Screening

*Note on A1, A2, and C1: For broker-dealers, "receivables" are primarily customer margin loans and securities lending positions — interest-earning assets that are the core of the business model. DSO analysis is not meaningful. CFFO >> NI reflects cash flows from customer deposit and margin balance changes, not earnings quality divergence.

Key Risks

1. Interest Rate Sensitivity

A significant portion of IBKR's revenue comes from net interest income on customer margin balances and cash deposits. A sustained decline in interest rates would compress this revenue stream. The company's revenue tripled from $4.2B (2022, pre-rate hike) as rates rose — a material portion of current profitability is rate-dependent.

2. Regulatory Risk

As a global electronic broker operating in multiple jurisdictions, IBKR is subject to complex regulatory requirements including capital adequacy, margin requirements, and customer protection rules. The 10-K/A filing (Amendment No. 1) addresses internal control certifications, indicating the importance of regulatory compliance.

3. Market Activity Dependence

Trading volumes drive transaction revenue. A sustained period of low volatility and reduced trading activity would compress revenue beyond the interest income component.

4. Concentration in Founder Control

IBKR's corporate structure (Class A and Class B shares) concentrates voting control. While Thomas Peterffy's founder involvement has been beneficial historically, it creates governance concentration risk.

Key Financial Trends (4-Year)

Summary

Grade: B. Generally healthy. An exceptionally clean balance sheet with rate sensitivity as the primary risk.

Interactive Brokers has what may be the cleanest balance sheet in financial services: zero goodwill, $19M in total debt, $5.0B in cash, and four years of improving margins and ROE. Accruals are deeply negative at -7.3%, indicating conservative accounting. The SG&A ratio of 3.2% reflects extraordinary operational efficiency for an electronic brokerage.

The Beneish M-Score could not be computed due to insufficient data, and the Altman Z-Score is not applicable to broker-dealers. Both models were designed for non-financial companies and cannot reliably assess broker-dealer earnings quality.

The screening engine's red flags (DSO, AR, CFFO ratio) are all structural false positives inherent to the brokerage model.

The genuine concerns:

This is not a company with accounting red flags. It is a company with an exceptional business model and clean accounting, whose primary risk is the interest rate environment.

**Disclaimer**: This report is based on Interactive Brokers Group's fiscal year 2025 10-K/A (Amendment No. 1) filed with the SEC on March 31, 2026. The original 10-K was filed separately. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade B means the company is generally healthy with minor concerns to monitor.