Grade: D — Significant Concerns
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2025-10-17) + Yahoo Finance
Auditor: Ernst & Young LLP — Clean opinion (auditor since at least 2019)
One-line verdict: Jabil is a $29.8B contract electronics manufacturer with razor-thin 8.9% gross margins that generate remarkably strong cash flow -- CFFO of $1.6B is 2.5x net income of $657M. Two red flags fire: accounts receivable outpaced revenue for two consecutive years while Jabil sold $11.4 billion of trade receivables to off-balance-sheet programs, and goodwill plus intangibles surged 39% to 74% of equity after the Pii and ProcureAbility acquisitions. The Z-Score of 1.59 sits in the grey zone, reflecting the inherently thin-margin, capital-intensive nature of this business. The M-Score of -2.49 is safely below the manipulation threshold. What saves Jabil: negative accruals, operating cash flow consistently exceeding net income, and a manageable 2.0x Debt/EBITDA.
| Metric | Result |
|---|---|
| Red Flags | **2** |
| Watch Items | **2** |
| Checks Completed | **18/18** |
| Beneish M-Score | **-2.49** (safe -- below -2.22 threshold) |
| F-Score (Fraud Probability) | **1.33** (0.49% probability) |
| Altman Z-Score | **1.59** (grey zone -- between 1.23 and 2.60) |
| Auditor | Ernst & Young LLP -- Unqualified opinion |
| Fiscal Year | 2025 (ended August 31, 2025) |
| Report Date | 2026-04-05 |
The Contract Manufacturing Giant
Jabil operates three reportable segments after reorganizing in fiscal 2025. Per the filing: "As of September 1, 2024, we are reporting our business in the following three segments: Regulated Industries, Intelligent Infrastructure, and Connected Living and Digital Commerce."
The filing states revenue increased 3.2% to $29.8B: "the Intelligent Infrastructure segment net revenue increased 34% primarily due to: (i) a 30% increase in revenues from existing customers within our cloud and data center infrastructure business and (ii) a 10% increase in revenues from existing customers within our capital equipment business." However, "The Connected Living and Digital Commerce segment net revenue decreased 25% due to a 27% decrease in revenues primarily driven by the divestiture of the Mobility Business."
The Mobility Business divestiture (sold to BYD) is the major structural change in this period, making year-over-year comparisons difficult. Revenue grew 3.2% organically after backing out a segment that previously generated billions.
Profitability: Thin Margins, Strong Cash Conversion
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $33.5B | $34.7B | $28.9B | $29.8B | +3% YoY |
| Gross Profit | $2.6B | $2.9B | $2.7B | $2.6B | -1% |
| Gross Margin | 7.9% | 8.3% | 9.3% | 8.9% | Declining |
| Net Income | $1.0B | $0.8B | $1.4B | $0.7B | -53% |
| Net Margin | 3.0% | 2.4% | 4.8% | 2.2% | Down sharply |
| ROE | 40.6% | 28.5% | 79.9% | 43.4% | Volatile |
Per the filing: "Gross profit as a percentage of net revenue decreased for the fiscal year ended August 31, 2025, compared to the fiscal year ended August 31, 2024, primarily due to product mix in our Connected Living and Digital Commerce and Intelligent Infrastructure segments."
Net income declined from $1.4B to $657M, partly due to $181M in restructuring charges. The filing discloses a "2025 Restructuring Plan" expecting approximately "$200 million in pre-tax restructuring and other related costs" including "$60 million to $70 million of employee severance" and "$65 million to $70 million of asset write-off costs."
Cash Flow: Genuine Strength Despite Thin Margins
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $1.7B | $1.7B | $1.6B |
| Net Income | $0.8B | $1.4B | $0.7B |
| **CFFO / Net Income** | **2.12** | **1.24** | **2.50** |
| CapEx | -$1.0B | -$0.8B | -$0.5B |
| Free Cash Flow | $0.7B | $0.9B | $1.2B |
CFFO consistently exceeds net income -- this is a genuine positive signal. The filing presents "Adjusted free cash flow" of $1,318M, noting that "Certain customers co-invest in PP&E with us." CapEx is declining as the company right-sizes after the Mobility divestiture.
The $11.4 Billion Receivables Factory
The most striking feature of Jabil's balance sheet is its massive trade receivable sale programs. Per the filing: "During the fiscal year ended August 31, 2025, we sold $11.4 billion of trade accounts receivable under these programs and we received cash proceeds of $11.3 billion." The receivables "were removed from the Consolidated Balance Sheets and the cash received was included as cash provided by operating activities."
This means Jabil's reported operating cash flow is significantly inflated by receivable sales. The on-balance-sheet AR increased to $1.06B from $1.07B, but the outstanding balance of sold receivables not yet collected was approximately $927M and $367M at year-end 2025 and 2024 respectively -- a $560M increase. If these receivables had remained on the balance sheet, working capital would look meaningfully worse.
The AR/revenue fail reflects this dynamic: receivables growth outpacing revenue growth for two consecutive years, partly because the off-balance-sheet receivable balances are expanding faster than on-balance-sheet AR is shrinking.
The Acquisition Buildup
Jabil completed two acquisitions in FY2025:
Total goodwill rose from $661M to $841M, and intangible assets from $143M to $273M. Combined, goodwill plus intangibles of $1.1B equal 74% of stockholders' equity -- above our 50% threshold.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 49 days, +5 days YoY |
| A2 | AR vs Revenue Growth | **FAIL** | **AR outpaced revenue for 2 consecutive years** |
| A3 | Revenue vs CFFO | PASS | Revenue +3.2%, CFFO -4.4% |
| B1 | Inventory vs COGS | PASS | Inventory +9.5% vs COGS +3.6% |
| B2 | CapEx vs Revenue | PASS | CapEx -40.3% vs revenue +3.2% |
| B3 | SG&A Ratio | PASS | SG&A/Gross Profit = 42.4% |
| B4 | Gross Margin | PASS | Gross margin 8.9%, -0.4pp. Stable |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 2.50 |
| C2 | Free Cash Flow | PASS | FCF $1.2B, FCF/NI = 1.78 |
| C3 | Accruals Ratio | PASS | -5.3%. Low accruals |
| C4 | Cash vs Debt | WATCH | Cash $1.9B covers 57% of $3.4B debt |
| D1 | Goodwill + Intangibles | **FAIL** | **$1.1B = 74% of equity** |
| D2 | Leverage | PASS | Debt/EBITDA = 2.0x |
| D3 | Soft Asset Growth | PASS | Other assets -6.2% vs revenue +3.2% |
| D4 | Asset Impairment | PASS | Write-offs normal |
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | WATCH | Goodwill+Intangibles surged 39% YoY |
| F1 | Beneish M-Score | PASS | M-Score = -2.49 |
Beneish M-Score Component Breakdown:
| Component | Value | What It Measures | Concern? |
|---|---|---|---|
| DSRI | 1.108 | Days Sales in Receivables | Normal |
| GMI | 1.044 | Gross Margin Index | Normal |
| AQI | 1.205 | Asset Quality Index | Moderate |
| SGI | 1.032 | Sales Growth Index | Normal |
| DEPI | 1.008 | Depreciation Index | Normal |
| SGAI | 0.937 | SG&A Index | Good |
| TATA | -0.053 | Total Accruals to Assets | Good |
| LVGI | 1.027 | Leverage Index | Normal |
Key Risks from the 10-K
1. Customer Concentration and Dependence
The filing warns: "We currently depend, and expect to continue to depend for the foreseeable future, upon a relatively small number of customers for a significant percentage of our revenue." Five largest customers generate the majority of revenue, and losing any single large customer would cause significant revenue decline.
2. Off-Balance-Sheet Receivable Risk
The $11.4B in receivable sales dwarf the on-balance-sheet AR of $1.06B. These programs "require compliance with several covenants including compliance with the interest ratio and debt to EBITDA ratio." If covenant compliance fails, Jabil would need to absorb these receivables back onto its balance sheet, dramatically changing its working capital and cash flow profile.
3. Restructuring Execution
The 2025 Restructuring Plan expects $200M in charges. The filing disclosed a $46M loss on securities related to "an impairment of an investment in Preferred Stock." Restructuring in a thin-margin business leaves little room for error.
4. Inventory Buildup in Specific Categories
While total inventory growth of 9.5% is not alarming, the filing shows work-in-process nearly doubled ($190M to $335M) and finished goods more than doubled ($246M to $508M), while raw materials were flat at $3.9B. This concentration of growth in WIP and finished goods, rather than raw materials, deserves monitoring.
Key Financial Trends (4-Year)
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Revenue | $33.5B | $34.7B | $28.9B | $29.8B |
| Net Income | $1.0B | $0.8B | $1.4B | $0.7B |
| Gross Margin | 7.9% | 8.3% | 9.3% | 8.9% |
| Net Margin | 3.0% | 2.4% | 4.8% | 2.2% |
| CFFO | $1.7B | $1.7B | $1.7B | $1.6B |
| CFFO/NI | 1.66 | 2.12 | 1.24 | 2.50 |
| FCF | $0.3B | $0.7B | $0.9B | $1.2B |
| Cash | $1.5B | $1.8B | $2.2B | $1.9B |
| Total Debt | $3.4B | $3.2B | $3.3B | $3.4B |
Summary
Grade: D. Two red flags with context that somewhat mitigates them.
Jabil triggers two fails: AR outpacing revenue (partly driven by the massive $11.4B off-balance-sheet receivable programs expanding) and goodwill plus intangibles at 74% of equity after two acquisitions. The Z-Score of 1.59 in the grey zone reflects the business model -- contract manufacturing operates on thin margins with huge working capital needs, not necessarily financial distress.
What is genuinely reassuring: CFFO consistently exceeds net income at 2.5x, accruals are negative, FCF is growing ($266M to $1.2B over four years), and leverage is manageable at 2.0x Debt/EBITDA. The M-Score is safely in the clean zone at -2.49.
What to watch: (1) the expanding off-balance-sheet receivable programs -- $927M in unsettled sold receivables up from $367M, (2) whether restructuring charges normalize or escalate, (3) the Intelligent Infrastructure segment's AI-driven growth sustainability, and (4) integration of the Pii and ProcureAbility acquisitions into a company whose core competency is electronics manufacturing.
**Disclaimer**: This report is based on Jabil's fiscal year 2025 10-K filed with the SEC on October 17, 2025. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade D means significant concerns were detected that warrant investigation.