Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-09, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
CIK: 0000823768
One-line verdict: Waste Management's F grade is a function of two balance sheet characteristics inherent to a $25B-revenue regulated waste monopoly: cash of $201M covers only 1% of $22.9B in total debt, and goodwill plus intangibles of $17.6B equal 177% of equity. The operations tell a completely different story — CFFO/NI of 2.23, free cash flow of $2.8B, M-Score of -2.80 (well inside clean territory), and a 22nd consecutive year of dividend increases (up 14.5% to $0.945/quarter for 2026). WM carries heavy debt by design: its regulated infrastructure business generates predictable cash flows that service the debt comfortably at Debt/EBITDA of 3.2x. The Stericycle acquisition ($7.2B, closed June 2024) temporarily elevated leverage, but the company has already resumed share repurchases — a $3.0B new authorization announced in February 2026.
| Metric | Result |
|---|---|
| Red Flags | **2** (Cash-to-debt 1%, Goodwill 177% of equity) |
| Watch Items | **0** |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.80** (clean) |
| Altman Z-Score | **2.07** (grey zone) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
Revenue and Profitability
Per the 10-K filing (in millions):
| Metric | FY2024 | FY2025 | Change |
|---|---|---|---|
| Revenue | $22,074 | $25,204 | +14.2% |
| Net Income (attributable) | $2,746 | $2,708 | -1.4% |
| EPS (diluted) | $6.81 | $6.70 | -1.6% |
| Gross Margin | 39.3% | 40.4% | +110bps |
| Effective Tax Rate | 20.6% | 20.9% | +30bps |
Revenue surged 14.2% primarily from the Stericycle acquisition (adding the Healthcare Solutions segment). Per the filing: "Net income attributable to Waste Management, Inc. was $2,708 million, or $6.70 per diluted share, compared with $2,746 million, or $6.81 per diluted share, in 2024. The $38 million decrease is primarily" due to "an impairment charge in our Recycling Processing and Sales business and higher depreciation and amortization costs and integration related expenses arising from our Stericycle acquisition."
The filing specifically details impairment charges: "(i) a $45 million impairment charge related to the decision to accelerate the closure of a landfill within our East Tier; (ii) a $16 million goodwill impairment charge related to a business engaged in oil recovery and sludge processing services."
On taxes, the filing notes: the "One Big Beautiful Bill Act" signed July 4, 2025 had "no material impact on our effective tax rate" but provided "a beneficial impact to cash taxes related to bonus depreciation."
Cash Flow: The Real Story
| Metric | FY2024 | FY2025 |
|---|---|---|
| Net Cash from Operations | $5,390 | $6,043 |
| Capital Expenditures | ~$3,100 | ~$3,200 |
| Free Cash Flow | ~$2,290 | ~$2,843 |
| CFFO/Net Income | 1.96 | 2.23 |
| FCF/Net Income | 0.83 | 1.05 |
Per the filing: "The $653 million increase in net cash provided by operating activities was primarily due to" improved working capital management alongside the Stericycle contribution. CFFO/NI of 2.23 is exceptional — every dollar of reported earnings is backed by more than two dollars of operating cash. This is characteristic of landfill businesses where depreciation and amortization (non-cash) form a large portion of costs.
The company has been aggressively returning cash: "In December 2025, we announced that our Board of Directors expects to increase the quarterly dividend from $0.825 to $0.945 per share for dividends declared in 2026, which is a 14.5% increase." Additionally, "given the substantial progress already made on leverage reduction following the Stericycle acquisition, we resumed share repurchases in February 2026. Our Board of Directors approved up to $3.0 billion in future share repurchases."
Balance Sheet and Debt
| Item | FY2024 | FY2025 |
|---|---|---|
| Cash & Equivalents | $414 | $201 |
| Restricted Funds | $513 | $622 |
| Total Debt | ~$22,000 | ~$22,900 |
WM carries minimal cash on hand — $201M against $22.9B in debt. The filing explains that the company has "$2.9 billion of debt as of December 31, 2025 that is exposed to changes in market interest rates within the next 12 months, associated with our commercial paper borrowings and tax-exempt bonds." It maintains a "$3.5 billion long-term U.S. and Canadian revolving credit facility" as its primary liquidity backstop.
This near-zero cash balance is deliberate for infrastructure monopolies with predictable cash flows. WM generates over $6B in annual operating cash flow, making the revolving credit facility the true liquidity measure, not the checking account balance.
Approximately 30% of total revenue is derived from contracts with remaining terms greater than one year, with "variable elements" primarily tied to volume and pricing escalators — providing revenue visibility.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 50 days, -4 days YoY (improving) |
| A2 | AR vs Revenue Growth | ✅ | AR +5.0% vs revenue +14.2% |
| A3 | Revenue vs CFFO | ✅ | Revenue +14.2%, CFFO +12.1% |
All three revenue quality checks pass cleanly. AR is actually growing slower than revenue — the opposite of a channel stuffing signal.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Normal |
| B2 | CapEx vs Revenue | ✅ | CapEx flat vs revenue +14.2% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 25.8% (excellent) |
| B4 | Gross Margin | ✅ | 40.4%, +1.1pp expansion |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 2.23 |
| C2 | Free Cash Flow | ✅ | FCF $2.8B, FCF/NI = 1.04 |
| C3 | Accruals Ratio | ✅ | -7.3%, very low |
| C4 | Cash vs Debt | ❌ | Cash $201M covers 1% of $22.9B debt |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $17.6B = 177% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 3.2x |
| D3 | Soft Asset Growth | ✅ | Normal |
| D4 | Asset Impairment | — | No write-off data |
Acquisition Risk & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | G&I stable YoY |
| F1 | Beneish M-Score | ✅ | -2.80 (very clean) |
Key Risks from the 10-K
Stericycle integration. The filing reports "$120 million" in acquisition and integration costs for FY2025, down from $160M in FY2024. Of this, $89M was SG&A and $31M was restructuring. The Healthcare Solutions segment integration is the primary execution risk over the next 12-18 months.
Recycling commodity exposure. The impairment in the Recycling Processing and Sales segment resulted from "significant deterioration of market pricing and demand for post-consumer plastics." Recycling revenues are exposed to commodity prices and trade policy: "Significant restrictions and tariffs on foreign trade could have a negative impact on our recycling export business."
Environmental liabilities. WM operates landfills with long-tail closure and post-closure obligations secured by letters of credit, surety bonds, and trust funds. These obligations can increase with regulatory changes — a perpetual overhang for the industry.
Landfill capacity. The filing notes the company is continuously seeking new permits and capacity, which faces increasing community opposition and regulatory complexity.
Summary
Grade: F is structural, not operational. Waste Management is an infrastructure monopoly with exceptional cash generation (CFFO/NI 2.23), clean accruals (-7.3%), and an M-Score of -2.80 that suggests zero manipulation risk. The F comes from carrying $22.9B in debt against $201M cash and $17.6B in goodwill — both features of a company that uses leverage to finance landfill acquisitions and returns excess cash to shareholders. Debt/EBITDA of 3.2x is typical for regulated infrastructure. With $6B+ annual operating cash flow, a $3.5B revolver, and 22 consecutive years of dividend growth, the debt structure is a feature, not a bug.
**Disclaimer**: This report is based on Waste Management's FY2025 10-K filed with SEC EDGAR on February 9, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025