# Baker Hughes Company (BKR) — Financial Analysis

**Exchange:** NASDAQ  
**Coverage as of:** 2026-Q2  
**Updated:** 2026-05-28  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/BKR/thesis · /stocks/BKR/memo

## Financial Snapshot

---
step: 04
title: Financial Quality & Adversarial Sweep
ticker: BKR
company: Baker Hughes Company
source: coverage-next-full
date: 2026-05-28
---

### Step 04 — Financial Quality & Adversarial Sweep

#### 1. Statement-Quality Snapshot

##### Income Statement Quality (FY2021–FY2025) [S1]

| Quality dimension | Verdict | Detail |
|---|---|---|
| Revenue recognition (ASC 606) | Clean | No restatements; uses long-cycle % completion (cost-to-cost) for IET equipment |
| Cost of revenue trend | Clean | ~75% steady; structural mix benefit visible (gross margin from 19.5% → 21.6%) |
| Non-GAAP reconciliation discipline | Reasonable | Adj-EBITDA bridges typical for large-cap industrials; restructuring + segment dis-synergies excluded |
| SBC as % rev | ~0.7% | Low for an industrial; ~$197M FY25 |
| Tax rate normalization | Reasonable | Effective tax 24–27% recent; geographic mix variable |

##### Cash Flow Quality

| Quality dimension | Verdict | Detail |
|---|---|---|
| OCF ↔ NI alignment | Good | Net cash conversion >120% FY25 ($3.81B OCF vs $2.59B NI; D&A + WC dynamics positive) |
| FCF / NI ratio | Good | $2.73B FCF / $2.59B NI = 105% FY25 — strong cash earnings quality |
| Capex / Depreciation | Normal | $1.08B capex vs ~$1.19B D&A; below maintenance level slightly = mature asset base |
| Working capital | Steady | Long-cycle inventory builds with backlog growth; nothing alarming |

##### Balance Sheet Quality

| Quality dimension | Verdict | Detail |
|---|---|---|
| Goodwill | $6.07B (15% of assets) | Stable post-2020 cleanup; no current impairment risk |
| Intangibles | ~$1B | Manageable; finite-lived |
| Off-balance-sheet items | Minimal | Operating leases consolidated post-ASC 842; no major SPVs |
| Debt structure | Strong IG | Net debt $2.8B / Adj-EBITDA $5.1B = ~0.55× leverage |
| Pension | Underfunded ~$300M (typical large industrial) | Manageable |

#### 2. Material Non-GAAP Adjustments [S2]

Adj-EBITDA bridge FY2025 (from press release reconciliations):
- GAAP operating income: ~$3.2B
- + D&A: $1.19B
- + Restructuring/separation costs: ~$200M
- + Other unusual items (legal, impairments): ~$0
- = Adj-EBITDA: ~$5.1B (18.4% margin)

**Verdict:** Add-backs are modest and consistent. No "EBITDA gymnastics" flag.

#### 3. Earnings Quality Score

| Test | Result |
|---|---|
| Sloan accrual ratio (NI – CFO)/Avg Assets | ~-1.5% (good — accruals decline, cash quality rising) |
| Beneish M-score factors | Clean — no flags in DSO, asset quality, gross margin, depreciation, leverage |
| Cash conversion ratio (FCF / NI) | 105% — best in 5y |
| Cash-flow vs operating income | OCF / Op Income ~ 1.2× — strong |

Verdict: **earnings quality is HIGH** and improving. The 2020 GE-spinoff legacy writedowns were a one-time cleanup; the franchise has produced clean, growing cash earnings for 3 straight years.

#### 4. ADVERSARIAL RESEARCH SWEEP

##### Short reports / activist letters

- **No active short thesis report** identified as of 2026-05-28 (Hindenburg / Spruce Point / Citron — none have published on BKR)
- Sell-side bear case = compression of OFSE pricing + LNG-cycle peak narratives, not fraud claims
- Seeking Alpha bear takes exist but are valuation-based, not red-flag-based (e.g., "BKR: Why I'm Still Not Buying Despite Strong LNG And Data Center Exposure" — author argues already-priced)

##### SEC investigations / enforcement

- No active SEC enforcement actions against BKR as of recent public records
- Historical predecessor (legacy Baker Hughes Inc.) had FCPA enforcement actions in 2007 and 2018-era settlements — fully resolved, baked into current compliance posture
- No FCPA, AML, or environmental enforcement currently pending

##### Lawsuits / litigation

- Standard commercial-contract disputes for OFS company of this size; no material undisclosed
- Predecessor Halliburton/Baker Hughes 2014-era anti-trust merger blocked; that's an HAL story not BKR risk now
- Subsea / GE Subsea legacy: some legacy warranty claims; reserves on balance sheet
- No class actions on accounting or disclosure quality pending

##### Auditor

- Auditor: KPMG (long-tenured)
- No going-concern flags, no critical audit matter (CAM) escalations beyond standard long-cycle revenue recognition

##### Insider / governance flags

- Combined CEO/Chair (Simonelli) — minor governance ding offset by lead-independent director
- Insider ownership low (<1%) — typical for spinoff industrial
- CEO pay-ratio 269× — high but in-line for large-cap energy/industrials

##### Accounting policy changes

- No notable changes in 3 years
- Q1'26 small revisions to internal segment-cost-allocation methodology (immaterial)

##### Recent regulator concerns

- Russia exit done 2022 (~$200M lost, fully written off)
- China-watchlist exposure ~5-10% revenue (managed)
- EU regulators reviewing Chart Industries deal (notification April 2026) — competition concerns possible but unlikely to block

##### Goodwill / impairment risk

- 2020 $15B goodwill impairment was cleanup of legacy GE Oil & Gas valuation — done
- Current goodwill $6.07B is well-supported by current segment EBITDA
- No impairment risk under base-case forecasts; bear scenario (oil to $50 + LNG cycle reset) might create tail risk on OFSE goodwill but is remote

##### Cyber / data incidents

- No material cyber breach disclosed in last 24 months
- Industry-standard exposure to operational-technology cyber risk

##### Off-balance-sheet liabilities

- Long-cycle contract performance obligations (advance payments) are on-balance-sheet under ASC 606
- Operating lease liabilities consolidated post-ASC 842
- Pension underfunding ~$300M (immaterial vs $19B equity)

#### 5. Adversarial Verdict

**Clean sweep.** No fraud / disclosure red flags; no active short thesis; auditor relationship stable; goodwill exposure controlled; legal items routine; insider mechanics typical for industrial spinoff. The risk profile is **business / cyclical risk, not accounting risk**.

#### 6. Quality Score Card

| Dimension | Grade | Comment |
|---|---|---|
| Revenue quality | A | ASC 606 clean; no recognition flags |
| Margin quality | A- | Improving mix; structural tailwind |
| Cash flow quality | A | OCF / FCF / NI alignment strong; conversion improving |
| Balance sheet quality | A- | Investment-grade leverage; goodwill controlled |
| Disclosure quality | A | MD&A detailed; segment economics clear |
| Governance | B+ | Combined CEO/Chair offset by independent board |
| Audit / regulatory | A | KPMG long-tenured; no enforcement |

**Composite: A-/A.** This is a high-quality industrial reporting franchise.

#### 7. Thesis Update

The clean financial-quality sweep removes "earnings/accounting risk" from the bear case. Remaining bear case is cyclical + macro. Updating `BKR_thesis_tracker.md`.

#### 8. Source Index

| Tag | Source | URL |
|---|---|---|
| S1 | XBRL summary | `BKR_financials/xbrl/xbrl_summary.md` |
| S2 | Q4 2025 press release Adj-EBITDA reconciliations | https://investors.bakerhughes.com/news/press-releases/news-details/2026/Baker-Hughes-Announces-Fourth-Quarter-and-Full-Year-2025-Results/default.aspx |

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/BKR/fundamental

## Navigation

- Overview: /stocks/BKR
- Financials (this page): /stocks/BKR/financials
- Thesis: /stocks/BKR/thesis
- Investment Memo: /stocks/BKR/memo
- Coverage universe: /stocks