Grade: B — Generally Healthy, Minor Concerns
Framework: Asset management-specific analysis + Schilit principles
Data: SEC EDGAR 10-K (Filed 2026-02-13, FY ended December 31, 2025) + Yahoo Finance
Auditor: KPMG LLP — Unqualified opinion
One-line verdict: T. Rowe Price is a premier active asset manager with $1,775.6B in AUM and a fortress balance sheet — $3.4B cash, only $0.45B debt, and no banking risk. The screening engine assigns Grade F based on one fail: CFFO < NI for 3 consecutive years. This is a legitimate signal, not a false positive — CFFO/NI ratios of 0.68x (2023), 0.80x (2024), and 0.84x (2025) mean T. Rowe is consistently generating less cash than reported earnings. The driver is non-cash investment income recognized in net income but not flowing through CFFO. This is not manipulation (M-Score of -2.30 is clean), but it means reported earnings are higher quality on a GAAP basis than on a cash basis. We override to B because the absolute cash position ($3.4B, nearly debt-free) is strong and the accruals ratio of 2.3% is low.
| Metric | Result |
|---|---|
| Red Flags (Engine) | **1** (financial 1 + management 0; C1 — CFFO < NI for 3 consecutive years) |
| Watch Items | **0** (financial 0 + management 0) |
| Checks Completed | **22/23** (financial 17/18 + management 5/5 G1-G5; 1 N/A) |
| Beneish M-Score | **-2.30** (borderline clean; threshold is -2.22) |
| F-Score (Fraud Probability) | **0.39** (0.15% probability — negligible) |
| Altman Z-Score | **N/A** (not applicable to financial services companies) |
| Auditor | KPMG LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
Important note: The M-Score of -2.30 is close to the -2.22 threshold but remains below it. The F-Score of 0.39 (0.15% fraud probability) is the lowest in this entire batch, suggesting exceptional transparency.
A Pure-Play Active Asset Manager
Per the 10-K, T. Rowe Price is one of the largest publicly traded active investment management firms globally. Revenue is primarily investment advisory fees based on AUM. The company also acquired Oak Hill Advisors (OHA), adding alternative investments to the platform. AUM at December 31, 2025: $1,775.6B (up 10.5% from $1,606.6B).
| Metric | 2022 | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $6.49B | $6.46B | $7.09B | **$7.31B** | +3.1% |
| Net Income | $1.56B | $1.79B | $2.10B | **$2.09B** | -0.6% |
| Gross Margin | 55.0% | 49.6% | 51.9% | **51.3%** | Stable |
| Net Margin | 24.0% | 27.7% | 29.6% | **28.5%** | Stable |
| ROE | 17.6% | 18.8% | 20.3% | **19.2%** | Strong |
| Diluted EPS | — | $7.76 | $9.15 | **$9.24** | +1.0% |
| CFFO | $2.36B | $1.22B | $1.69B | **$1.75B** | +4.0% |
| CFFO/NI | 1.51x | 0.68x | 0.80x | **0.84x** | Below 1 |
| Cash | $1.76B | $2.07B | $2.65B | **$3.38B** | Growing |
| Total Debt | $0.33B | $0.31B | $0.28B | **$0.45B** | Minimal |
Per the filing, adjusted diluted EPS was $9.72 (non-GAAP), vs $9.24 GAAP. Average AUM of $1,677.3B (up 7.4%). Ending AUM of $1,775.6B. The CFFO gap below net income is driven by non-operating investment income — T. Rowe Price seeds its own funds and records investment gains in net income that don't translate to operating cash flow.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 46 days, +1 day |
| A2 | AR vs Revenue Growth | PASS | AR +6.1% vs revenue +3.1% |
| A3 | Revenue vs CFFO | PASS | Revenue +3.1%, CFFO +4.0% |
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | PASS | CapEx declining 35% |
| B3 | SG&A Ratio | PASS | SG&A/GP = 33.9% |
| B4 | Gross Margin | PASS | 51.3%, -0.7pp — stable |
| C1 | CFFO vs Net Income | **FAIL** | CFFO < NI for 3 consecutive years |
| C2 | Free Cash Flow | PASS | FCF $1.48B |
| C3 | Accruals Ratio | PASS | 2.3% — low |
| C4 | Cash vs Debt | PASS | Cash $3.38B covers $0.45B debt — 7.5x |
| D1 | Goodwill + Intangibles | PASS | $2.9B = 27% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 0.1x — essentially zero |
| D3 | Soft Asset Growth | PASS | Normal |
| D4 | Asset Impairment | N/A | No data |
| E1 | Serial Acquirer FCF | PASS | Positive |
| E2 | Goodwill Surge | PASS | -3% YoY |
| F1 | Beneish M-Score | PASS | -2.30 (< -2.22) |
| **G1-G5** | **Management signals (new)** | **✅✅✅✅✅** |
Management Signals (New G1-G5 Framework)
**Why separate management signals?** Schilit's *Financial Shenanigans* treats abrupt executive, auditor, and director departures as important early-warning signals. 8-K Item 5.02 executive/director changes and auditor-change filings help separate clean financial statements from governance or continuity risk.
| # | Check | Result | Detail |
|---|---|---|---|
| G1 | CEO change | ✅ | No abnormal signal in the last 18 months |
| G2 | CFO / key financial officer change | ✅ | No abnormal signal in the last 18 months |
| G3 | Independent director / audit committee departure | ✅ | No abnormal signal in the last 18 months |
| G4 | Key operating or legal leader departure | ✅ | No abnormal signal in the last 18 months |
| G5 | Auditor change | ✅ | No abnormal signal in the last 18 months |
Data source: SEC EDGAR 8-K filings filtered for Item 5.02 + management-signals-by-ticker.json
Key Risks from the 10-K
1. CFFO/NI Gap — Real but Not Manipulative
Three consecutive years of CFFO < NI is a legitimate concern. T. Rowe seeds its investment products with its own capital and records investment gains/losses in GAAP net income. These gains are real but not operating cash flow. If investment markets decline, the gap could reverse (CFFO > NI as losses reduce NI).
2. AUM Sensitivity to Market Declines
With $1,775.6B in AUM and fee revenue tied to daily AUM levels, a sustained equity market decline would directly reduce revenue. Per the filing, "our revenues depend largely on the total value and composition of our assets under management."
3. Active Management Secular Headwinds
Passive index funds continue to take market share from active managers. T. Rowe's average AUM fee rate (investment advisory annualized effective fee rate) is under competitive pressure.
4. M-Score at Boundary
The M-Score of -2.30 is just below the -2.22 threshold. While it clears, it's closer than most companies in this batch. Combined with the CFFO/NI gap, this warrants ongoing monitoring.
Summary
Grade: B. Generally healthy. A nearly debt-free asset manager with strong cash reserves, consistent profitability, and one legitimate concern — CFFO consistently below net income.
T. Rowe Price's balance sheet is a fortress — $3.38B cash, $0.45B debt, Debt/EBITDA of 0.1x. The F-Score of 0.39 (lowest in this batch) and accruals of 2.3% suggest clean accounting. The C1 fail (CFFO < NI for 3 years) is real and driven by investment income recognition — not manipulation, but investors should be aware that reported earnings overstate cash generation by ~16-32%. The M-Score at -2.30 is borderline but clean. Watch AUM flows, fee rate compression, and the CFFO/NI gap.
**Disclaimer**: This report is based on T. Rowe Price Group's fiscal year 2025 10-K filed with the SEC on February 13, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade B means the company is generally healthy with minor concerns to monitor.