Grade: C — Some Red Flags, Investigate
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2025-08-06, FY ended June 30, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion (1 critical audit matter: goodwill valuation)
One-line verdict: News Corp passes most quantitative screens but carries a heavy goodwill burden at $4.4B — 72% of equity — and the auditor flagged goodwill valuation as its sole critical audit matter. The filing reveals significant judgment calls around "discount rates generally ranging from 8.0% to 17.0%" and "EBITDA multiples from guideline public companies ranging from 5.0x to 10.0x." A narrow miss on any assumption could trigger material write-downs. Meanwhile, the company just divested Foxtel and reported all its results as discontinued operations, making year-over-year comparisons unreliable. Net income jumped to $1.18B from $266M, but the prior year was depressed by impairment charges. Investors in either share class — NWSA (Class A, one vote) or NWS (Class B, no vote) — see identical financial results from the same entity.
| Metric | Result |
|---|---|
| Red Flags | **1** (Goodwill+Intangibles = 72% of equity) |
| Watch Items | **1** (Cash covers 82% of debt) |
| Checks Completed | **15/18** (3 N/A: SG&A, gross margin, M-Score data) |
| Beneish M-Score | **N/A** (insufficient data) |
| F-Score | **1.10** (low manipulation probability 0.41%) |
| Altman Z-Score | **2.70** (safe zone) |
| Auditor | Ernst & Young LLP — Unqualified opinion, serving since inception |
The Dual-Class Structure
NWS and NWSA are two share classes of the same company, News Corporation. Per the 10-K: "The Company's Class A and Class B Common Stock are listed on The Nasdaq Global Select Market under the trading symbols NWSA and NWS, respectively." Class A (NWSA) has voting rights; Class B (NWS) does not. The financial statements, assets, liabilities, and cash flows are identical — this is one company with one 10-K.
Five Segments, One Transformation Story
Per the filing, News Corp's FY2025 segment breakdown:
| Segment | Revenue | Segment EBITDA |
|---|---|---|
| Dow Jones | $2,331M | $588M |
| Digital Real Estate Services | $1,802M | $601M |
| Book Publishing | $2,149M | $296M |
| News Media | $2,170M | $153M |
| Other (corporate) | — | ($223M) |
Revenue for the year was $8.45B, up 2.4% from $8.25B. Net income surged from $266M to $1.18B — but the prior year included impairment charges that depressed earnings. The CFFO/NI ratio was 0.83, meaning profits are backed by cash, though the ratio has ranged from 0.83 to 5.21 over three years, reflecting volatile net income rather than volatile cash flows.
The critical structural shift: In April 2025, News Corp completed the sale of Foxtel, its Australian subscription video business. Per the filing: "All assets and liabilities, results of operations and cash flows for Foxtel have been classified as discontinued operations for all periods presented." This sale removed a capital-intensive, declining business and simplified the portfolio.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 67 days, +5 days YoY |
| A2 | AR vs Revenue Growth | PASS | AR growth 10.0% vs revenue growth 2.4% |
| A3 | Revenue vs CFFO | PASS | Revenue +2.4%, CFFO +9.0% |
AR grew faster than revenue (10.0% vs 2.4%), but not by enough to trigger a flag. DSO at 67 days is typical for a media/information services company with enterprise clients who pay on standard terms.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | PASS | Inventory +22.9%, COGS data unavailable |
| B2 | CapEx vs Revenue | PASS | CapEx growth 14.0% vs revenue 2.4% |
| B3 | SG&A Ratio | N/A | Insufficient data |
| B4 | Gross Margin | N/A | Insufficient data |
The SG&A and gross margin checks returned insufficient data because yfinance does not break out cost of sales for News Corp's reporting structure. The 10-K segments report "Segment EBITDA" rather than gross profit.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 0.83 |
| C2 | Free Cash Flow | PASS | FCF $571M, FCF/NI = 0.48 |
| C3 | Accruals Ratio | PASS | 1.3%, near zero |
| C4 | Cash vs Debt | WATCH | Cash $2.4B covers 82% of debt $2.9B |
Cash of $2.4B covers only 82% of total debt of $2.9B. This is not a crisis level, but the company does not have a large cash cushion relative to obligations. After the Foxtel sale, debt was reduced from $4.2B (FY2023) to $2.9B, a meaningful improvement.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | FAIL | Goodwill+Intangibles $6.3B = 72% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 2.1x |
| D3 | Soft Asset Growth | PASS | Other assets -94.2% vs revenue +2.4% |
| D4 | Asset Impairment | PASS | Write-offs normal |
D1 is the sole red flag. Goodwill of $4.37B plus intangibles of $1.93B totals $6.3B, representing 72% of total shareholders' equity. The auditor singled this out as the critical audit matter: "Auditing the Company's annual goodwill impairment test was complex due to the significant judgment in estimating the fair value" of reporting units. The filing discloses that discount rates ranged from 8.0% to 17.0% and EBITDA multiples ranged from 5.0x to 10.0x — wide ranges that indicate genuine uncertainty in valuations.
The company performed no impairment of goodwill or indefinite-lived intangible assets in FY2025, using both quantitative and qualitative assessments depending on the reporting unit. But as the filing warns: "Any downward revisions in the fair value of a reporting unit, indefinite-lived intangible assets, investments or other long-lived assets could result in impairments for which non-cash charges would be required, and any such charge could be material."
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill+Intangibles flat YoY |
No acquisition surge. The Foxtel divestiture was the major transaction in FY2025.
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | N/A | Insufficient data |
Key Risks from the 10-K
1. Goodwill Impairment Risk — The Auditor's Only Critical Audit Matter
Ernst & Young flagged goodwill valuation as its sole critical audit matter. The $4.37B goodwill balance is concentrated in specific reporting units, and the filing discloses wide ranges of assumptions: discount rates from 8% to 17%, EBITDA multiples from 5x to 10x, and long-term growth rates from 2% to 3%. Any deterioration in macroeconomic conditions, audience trends, or advertising markets could push a reporting unit's fair value below its carrying amount.
2. AI Disruption to the News Business
The filing repeatedly identifies AI as both an opportunity and a threat: "as a result of rapidly changing and evolving technologies (including developments in AI, particularly generative AI)...the consumer-focused businesses within the Dow Jones segment continue to face increasing competition for both circulation and advertising revenue, including from a variety of alternative news and information sources, programmatic advertising buying channels and AI aggregators and other emerging technology platforms." Dow Jones generates $2.33B in revenue — over a quarter of the company — and its business model depends on paid subscriptions for premium content that AI tools could commoditize.
3. Concentration Risk — Single Suppliers
Per the filing: "The Company's businesses depend on a single or limited number of third-party suppliers for certain products, services, data and information. For example, the Company relies on Amazon Web Services to supply cloud-based services used in many of the Company's business activities and Google to provide workspace and other enterprise services."
4. Controlled Company — Murdoch Family
News Corp was "organized on December 11, 2012 in connection with its separation from Twenty-First Century Fox, Inc." The dual-class structure means voting control is concentrated. Holders of NWSA (Class A) have voting rights, while NWS (Class B) holders have no vote.
Summary
Grade: C. Goodwill concentration is the primary concern.
News Corp's operating metrics are generally clean: CFFO/NI of 0.83, accruals ratio of 1.3%, and Debt/EBITDA of 2.1x. The Foxtel divestiture simplified the business and reduced leverage. Revenue is diversified across Dow Jones ($2.3B), Digital Real Estate ($1.8B), Book Publishing ($2.1B), and News Media ($2.2B).
The one quantitative red flag — goodwill and intangibles at 72% of equity — is directly linked to the auditor's sole critical audit matter. With discount rate assumptions ranging from 8% to 17%, there is meaningful impairment risk if any reporting unit underperforms. The AI disruption threat to the news and information businesses adds a forward-looking dimension to this risk.
The books are clean today. The question is whether the $4.4B goodwill balance reflects reality.
**Disclaimer**: This report is based on News Corp's FY2025 10-K filed with SEC EDGAR on August 6, 2025. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion, 1 critical audit matter — goodwill valuation)
Fiscal year ended: June 30, 2025
Note: NWS (Class B) and NWSA (Class A) are share classes of the same entity. This report covers both.