SLB Limited (SLB) FY2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-01-23, FY ended December 31, 2025) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Unqualified opinion

One-line verdict: SLB's F grade stems from two structural balance sheet issues: goodwill plus intangibles of $21.8B represent 83% of equity (an acquisition-driven problem that worsened with the ChampionX deal), and cash of $4.2B covers only 36% of $11.6B debt. The underlying business quality is high — CFFO/NI of 1.92x, free cash flow of $4.5B, and a disciplined oilfield services model with 18.2% gross margins. But SLB paid a price for its acquisition strategy: the ChampionX merger added goodwill impairment charges, workforce reductions, and integration costs that collectively reduced FY2025 net income by 24% to $3.4B despite revenue only declining 1.6%. The M-Score of -2.53 passes but is the tightest among this energy peer group, driven by elevated DSRI (1.102) suggesting days sales in receivables are stretching.

Metric	Result
❌ Red Flags	2 (Goodwill/intangibles 83% of equity, cash covers 36% of debt)
⚠️ Watch Items	2 (Soft assets +30.0%, write-offs up 104%)
Checks Completed	18/18
Beneish M-Score	-2.53 (passes but closest to threshold in peer group)
Auditor	PricewaterhouseCoopers LLP — Unqualified opinion

The Digital Oilfield Conglomerate

SLB operates across four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. The company completed the ChampionX acquisition in mid-2025, adding production chemical technologies. Per the 10-K, ChampionX "supplies chemistry technologies and solutions that optimize production and processing, support asset integrity, and extend asset life." SLB also disposed of "the ChampionX Drilling Technologies business" for $286 million.

The filing discloses multiple charges from the ChampionX integration: goodwill impairment ($69M + $52M equity method investment impairments), workforce reductions ($66M + $57M across quarters), amortization of inventory purchase accounting adjustment ($66M), and acquisition-related professional fees ($61M).

Key Financials

Metric	FY2022	FY2023	FY2024	FY2025	Trend
Revenue	$28.1B	$33.1B	$36.3B	$35.7B	First decline in 3 years
Net Income	$3.4B	$4.2B	$4.5B	$3.4B	-24% from integration costs
Gross Margin	18.4%	19.8%	20.6%	18.2%	Compressed by ChampionX
Net Margin	12.2%	12.7%	12.3%	9.4%	Lowest in 3 years
ROE	19.5%	20.8%	21.1%	12.9%	Diluted by goodwill assets
CFFO/NI	1.08x	1.58x	1.48x	1.92x	Strengthening

Cash Flow: Disciplined Despite Acquisition Drag

Metric	FY2022	FY2023	FY2024	FY2025
Operating Cash Flow	$3.7B	$6.6B	$6.6B	$6.5B
CapEx	$1.7B	$2.1B	$2.1B	$1.9B
Free Cash Flow	$2.0B	$4.5B	$4.5B	$4.5B
Dividends	$1.4B	$1.4B	—	—
Share Repurchases (cumulative)	—	—	—	$5.9B total program
Debt Repaid	$1.6B	$1.6B	$1.0B	$1.6B

Per the 10-K: SLB repaid "$0.5 billion 1.40% Senior Notes due 2025" and "fully repaid all the $0.6 billion of debt assumed in connection with the acquisition of ChampionX" in Q3 2025. The share repurchase program authorized $10B; $5.9B used as of year-end. "No shares were repurchased during the three months ended December 31, 2025" — suggesting management is conserving cash post-ChampionX. Dividends were "$1.00 per share" in FY2023.

The 18-Point Screening

Revenue Quality

#	Check	Result	Detail
A1	DSO Change	✅ Pass	DSO 89 days, +8 days YoY — high but typical for international oilfield services
A2	AR vs Revenue Growth	✅ Pass	AR +8.5% vs revenue -1.6% — AR growing while revenue flat
A3	Revenue vs CFFO	✅ Pass	Revenue -1.6%, CFFO -1.7% — closely tracking

DSO of 89 days is elevated but standard for SLB's customer base, which includes national oil companies (NOCs) with 60-120 day payment cycles. The 10-K notes that contracts in the Middle East, Africa, and Latin America often have longer settlement terms.

Expense Quality

#	Check	Result	Detail
B1	Inventory vs COGS	✅ Pass	Inventory +15.0% vs COGS +1.3% — manageable
B2	CapEx vs Revenue	✅ Pass	CapEx -8.6% vs revenue -1.6% — disciplined
B3	SG&A Ratio	✅ Pass	SG&A/Gross Profit 5.2% — excellent cost control
B4	Gross Margin	✅ Pass	Gross margin 18.2%, -2.3pp — ChampionX dilution

Cash Flow Quality

#	Check	Result	Detail
C1	CFFO vs Net Income	✅ Pass	CFFO/NI 1.92x — strong cash backing
C2	Free Cash Flow	✅ Pass	FCF $4.5B, FCF/NI 1.35x — robust
C3	Accruals Ratio	✅ Pass	Accruals ratio -5.7% — clean
C4	Cash vs Debt	❌ Fail	Cash $4.2B covers 36% of $11.6B debt

Balance Sheet Quality

#	Check	Result	Detail
D1	Goodwill + Intangibles	❌ Fail	$21.8B (goodwill $16.8B + intangibles $5.0B) = 83% of equity
D2	Leverage	✅ Pass	Debt/EBITDA 1.7x, interest coverage 9.8x — strong
D3	Soft Asset Growth	⚠️ Watch	Other assets +30.0% vs revenue -1.6%
D4	Asset Impairment	⚠️ Watch	Write-offs up 104% YoY

The goodwill burden is the accumulation of two decades of acquisitions: Cameron (2016), Aker Subsea (2023), ChampionX (2025). At 83% of equity, any significant impairment would meaningfully reduce book value. The 10-K discloses goodwill impairment charges and equity-method investment impairments totaling over $120M in FY2025.

Acquisition Risk

#	Check	Result	Detail
E1	Serial Acquirer FCF	✅ Pass	FCF after acquisitions positive
E2	Goodwill Surge	✅ Pass	Goodwill +24% YoY — ChampionX addition

Manipulation Score

#	Check	Result	Detail
F1	Beneish M-Score	✅ Pass	M-Score -2.53 — passes but closest to threshold

Altman Z-Score: 3.23 (safe zone) | F-Score: 0.55 (low manipulation probability 0.20%)

The M-Score component DSRI of 1.102 indicates days sales in receivables increased relative to the prior year. Combined with GMI of 1.128 (gross margin declining), these two components together signal that SLB is collecting revenue more slowly while margins compress — a pattern worth monitoring but not yet alarming given the NOC customer base.

Key Risks from the 10-K

1.ChampionX integration risk: FY2025 included $69M goodwill impairment, $52M equity-method investment impairment, $123M workforce reductions, $61M professional fees, and a $149M gain on the Palliser APS project sale — a net drag of $156M from integration activities. The filing warns of ongoing integration costs in FY2026.

2.International exposure: SLB generates the majority of revenue outside North America, including in regions subject to geopolitical risk. The filing warns of "changing global economic and geopolitical conditions" and "changes in exploration and production spending by SLB's customers."

3.Pension obligations: Per the 10-K, pension and postretirement benefit obligations use "actuarial concepts" that are sensitive to discount rate assumptions. SLB notes that foreign exchange rate changes would "increase the unrealized value of SLB's forward contracts by $166 million."

4.Goodwill impairment vulnerability: At $16.8B, goodwill represents the single largest asset on SLB's balance sheet. Any sustained decline in oilfield services activity or pricing would pressure goodwill carrying values across all four divisions.

Summary

SLB's F grade reflects the balance sheet consequences of its acquisitive growth strategy — 83% of equity is intangible, and cash covers only 36% of debt. But the operating business is genuinely high-quality: SG&A at 5.2% of gross profit is best-in-class, CFFO/NI of 1.92x demonstrates strong cash conversion, interest coverage of 9.8x is comfortable, and FCF of $4.5B provides ample room for deleveraging. The M-Score of -2.53 is the tightest in this energy cohort — driven by stretching receivables and compressing margins post-ChampionX — but still passes. The key monitoring point is whether ChampionX integration costs normalize by FY2026 and whether the $16.8B goodwill balance holds through the next oilfield services cycle.