Grade: C — Some Red Flags, Investigate
Framework: 18-point forensic screening + Schilit principles
Data: SEC EDGAR 10-K (Filed 2026-02-12, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
One-line verdict: Nasdaq's transformation from exchange operator to financial technology company has loaded the balance sheet with $20.9B in goodwill and intangibles — 171% of equity — primarily from the $10.5B Adenza acquisition completed in late 2023. This is the dominant risk. Revenue grew 11.6% to $8.26B, net income surged 60% to $1.79B (recovering from Adenza integration costs), and CFFO/NI of 1.26x shows clean cash conversion. The M-Score of -2.59 is below the manipulation threshold. But two structural issues land fails: goodwill at 171% of equity and cash covering only 35% of $9.5B in debt. Nasdaq's three segments — Capital Access Platforms, Financial Technology, and Market Services — generate diversified, recurring revenue. The risk is goodwill impairment, not earnings manipulation.
| Metric | Result |
|---|---|
| Red Flags (Engine) | **2** (goodwill > equity, low cash-to-debt) |
| Watch Items | **2** (CapEx growth, soft asset growth) |
| Checks Completed | **17/18** (1 N/A) |
| Beneish M-Score | **-2.59** (clean; threshold is -2.22) |
| F-Score (Fraud Probability) | **0.69** (0.25% probability — very low) |
| Altman Z-Score | **N/A** (not applicable to financial services companies) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
Important note: We override the engine Grade F to C. The two fails are structural — goodwill from a known acquisition and debt financing that acquisition — not earnings manipulation signals. However, $20.9B in intangibles creates real impairment risk that warrants the C grade.
Three-Segment Technology Company
Per the 10-K, Nasdaq operates through three segments: Capital Access Platforms (listings, index licensing, data), Financial Technology (anti-financial crime, regulatory technology, marketplace infrastructure — largely from the Adenza acquisition), and Market Services (trading across equities, derivatives, commodities). The company has been divesting non-core businesses, recording net gains on divestitures of Solovis, Nordic power futures, and Nasdaq Risk Modelling for Catastrophes.
| Metric | 2022 | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $6.23B | $6.06B | $7.40B | **$8.26B** | +11.6% |
| Net Income | $1.12B | $1.06B | $1.12B | **$1.79B** | +60% |
| Gross Margin | 37.6% | 42.0% | 40.4% | **42.2%** | Improving |
| Net Margin | 18.1% | 17.5% | 15.1% | **21.6%** | Recovering |
| CFFO | $1.71B | $1.70B | $1.94B | **$2.25B** | +16.3% |
| FCF | $1.55B | $1.54B | $1.73B | **$1.99B** | +15.2% |
| Total Debt | $5.85B | $10.87B | $9.87B | **$9.47B** | Declining |
The debt spike from $5.85B to $10.87B in 2023 was the Adenza acquisition financing. Nasdaq has been paying down debt since — $9.87B in 2024, $9.47B in 2025. Net income's 60% jump reflects reduced integration costs and operating leverage.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 42 days, improved -9 days YoY |
| A2 | AR vs Revenue Growth | PASS | AR -7.7% vs revenue +11.6% |
| A3 | Revenue vs CFFO | PASS | Revenue +11.6%, CFFO +16.3% |
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | WATCH | CapEx growth 28.5% vs revenue 11.6% |
| B3 | SG&A Ratio | PASS | 12.2% — excellent |
| B4 | Gross Margin | PASS | 42.2%, +1.8pp improvement |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.26 |
| C2 | Free Cash Flow | PASS | FCF $1.99B |
| C3 | Accruals Ratio | PASS | -1.5% — low |
| C4 | Cash vs Debt | **FAIL** | Cash $3.35B covers 35% of $9.47B debt |
| D1 | Goodwill + Intangibles | **FAIL** | $20.9B = 171% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 3.0x — manageable |
| D3 | Soft Asset Growth | WATCH | Other assets grew 27.5% vs revenue 11.6% |
| D4 | Asset Impairment | N/A | No write-off data |
| E1 | Serial Acquirer FCF | PASS | FCF positive after acquisitions |
| E2 | Goodwill Surge | PASS | Goodwill flat YoY (post-acquisition) |
| F1 | Beneish M-Score | PASS | -2.59 (< -2.22) |
Key Risks from the 10-K
1. Goodwill Impairment Risk — $20.9B
The Adenza acquisition created substantial goodwill. Per Item 1A, if Adenza's Financial Technology solutions underperform expectations, goodwill impairment could be material. At 171% of equity, even a partial writedown would significantly impact book value.
2. Debt Load from Adenza
While debt is declining, $9.47B remains significant for a company generating $2.25B CFFO. The debt-to-EBITDA of 3.0x is manageable but leaves limited room for additional acquisitions or market downturns.
3. Market Structure and Regulatory Risk
Per the 10-K, Nasdaq operates in heavily regulated markets. Changes to equity market structure rules, payment-for-order-flow regulations, or clearing mandates could affect trading revenue. The filing discusses risks from "potential changes in laws and regulations" across multiple jurisdictions.
4. Integration Risk
The Adenza acquisition transformed Nasdaq's revenue mix toward anti-financial-crime technology. Per the filing, integration of acquired businesses involves risks including retention of key employees, technology integration, and customer retention.
Summary
Grade: C. Some red flags — investigate. The goodwill load from Adenza is the dominant risk, offset by clean cash flow quality and declining debt.
Nasdaq's earnings quality is clean: CFFO/NI of 1.26x, M-Score of -2.59, accruals ratio of -1.5%, and improving margins. The two fails are both acquisition-driven: $20.9B in goodwill (171% of equity) and $9.47B in debt. Nasdaq is actively deleveraging and divesting non-core assets. The question is whether Adenza's Financial Technology platform delivers the growth that justifies its price. Watch for goodwill impairment signals and debt-reduction progress.
**Disclaimer**: This report is based on Nasdaq, Inc.'s fiscal year 2025 10-K filed with the SEC on February 12, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade C means some red flags exist that warrant investigation.