Grade: A — Strong Financial Health
Framework: Insurance/asset management-specific analysis + Schilit principles (traditional manufacturing checks partially N/A)
Data: SEC EDGAR 10-K (Filed 2026-02-18, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
One-line verdict: Principal Financial Group is a diversified insurance and asset management company with $1.81 trillion in AUA and $781B in AUM. No red flags triggered. Revenue of $15.63B, net income of $1.19B, CFFO/NI of 3.83x — the elevated cash-to-earnings ratio is normal for insurance companies where premium collections generate operating cash flow well above GAAP net income. Cash of $32.3B comfortably covers $3.95B in debt. Goodwill and intangibles of $2.9B are 24% of equity — manageable. The one watch item is CapEx growing 42.4%, but this is technology investment, not a red flag. Net income declined 24% from the 2024 level due to lower realized investment gains. The M-Score and Z-Score are not applicable to insurance companies.
| Metric | Result |
|---|---|
| Red Flags | **0** |
| Watch Items | **1** (CapEx growth outpacing revenue) |
| Checks Completed | **12/18** (6 N/A) |
| Beneish M-Score | **N/A** (model does not apply to insurance/financial companies) |
| F-Score (Fraud Probability) | **1.76** (0.65% probability — low) |
| Altman Z-Score | **N/A** (not applicable to insurance companies) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
A Diversified Financial Services Company
Per the 10-K, Principal operates through Retirement and Income Solutions, Principal Asset Management, and Benefits and Protection segments. The company had $1,814.6 billion in AUA including $781.0 billion in AUM as of December 31, 2025.
| Metric | 2022 | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $17.54B | $13.67B | $16.13B | **$15.63B** | -3.1% |
| Net Income | $4.76B | $0.62B | $1.57B | **$1.19B** | -24.2% |
| Net Margin | 27.1% | 4.6% | 9.7% | **7.6%** | Volatile |
| ROE | 47.7% | 5.7% | 14.2% | **10.0%** | Normalizing |
| CFFO | $3.17B | $3.79B | $4.60B | **$4.54B** | -1.4% |
| FCF | $3.06B | $3.69B | $4.53B | **$4.44B** | -1.9% |
| Cash | $67.7B | $70.4B | $72.5B | **$32.3B** | -55% |
| Total Debt | $4.08B | $3.99B | $4.11B | **$3.95B** | Stable |
Revenue and net income are volatile because insurance accounting involves mark-to-market movements on investment portfolios. The 2022 net income spike of $4.76B and 2023 trough of $0.62B reflect investment gains/losses. CFFO of $4.54B is much more stable and relevant for assessing ongoing business quality.
Per the filing, the Group Insurance segment had a total benefits ratio of 81.7% (2025) vs 82.7% (2024) and administrative expense ratio of 14.9%.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 535 days (normal for insurance — reflects premium receivable cycle), +8 days |
| A2 | AR vs Revenue Growth | PASS | AR -1.6% vs revenue -3.1% |
| A3 | Revenue vs CFFO | PASS | Both declining modestly |
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | WATCH | CapEx growth 42.4% vs revenue -3.1% |
| B3 | SG&A Ratio | N/A | Insurance |
| B4 | Gross Margin | N/A | Insurance |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 3.83 (normal for insurance) |
| C2 | Free Cash Flow | PASS | FCF $4.44B |
| C3 | Accruals Ratio | PASS | -1.0% — clean |
| C4 | Cash vs Debt | PASS | Cash $32.3B covers $3.95B debt — 8x coverage |
| D1 | Goodwill + Intangibles | PASS | $2.9B = 24% of equity |
| D2 | Leverage | N/A | Insurance |
| D3 | Soft Asset Growth | N/A | Insurance |
| D4 | Asset Impairment | N/A | No data |
| E1 | Serial Acquirer FCF | PASS | Positive |
| E2 | Goodwill Surge | PASS | -2% YoY |
| F1 | Beneish M-Score | N/A | Insurance |
Key Risks from the 10-K
1. Investment Portfolio Risk
PFG holds a large investment portfolio to back insurance liabilities. Per Item 1A, adverse movements in interest rates, credit spreads, and equity markets could result in significant realized and unrealized losses. The volatile net income pattern ($4.76B to $0.62B to $1.57B to $1.19B) reflects this sensitivity.
2. Insurance Reserving Risk
Estimating future policyholder benefits requires actuarial assumptions about mortality, morbidity, and discount rates. Changes in these assumptions can cause large adjustments. The filing discusses annual assumption updates and their impacts.
3. Competitive Fee Pressure on AUM
The asset management industry faces secular fee compression. With $781B in AUM, even small basis point declines in average fee rates would materially impact fee revenue.
4. Cash Balance Decline
Cash dropped from $72.5B to $32.3B, a 55% decline. This likely reflects changes in the insurance separate account structure or reclassification, but warrants monitoring for liquidity implications.
Summary
Grade: A. Strong financial health. A diversified insurance and asset management franchise with clean cash flow, low leverage, and no accounting red flags.
PFG's CFFO of $4.54B is stable and comfortably covers $1.19B in net income (3.83x). Cash of $32.3B covers debt by 8x. Goodwill is manageable at 24% of equity. The volatile GAAP net income is a feature of insurance accounting — CFFO tells the real story. Watch the investment portfolio and fee pressure dynamics.
**Disclaimer**: This report is based on Principal Financial Group's fiscal year 2025 10-K filed with the SEC on February 18, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade A means strong financial health with no significant concerns.