Equifax Inc (EFX) Executive Summary Equifax demonstrates high profitability and strong cash generation, supported by solid margins and conservative leverage, though it faces concerns around liquidity and earnings momentum. Core Profitability and Earnings Quality Equifax is a consumer and commercial credit information and analytics company that combines high profitability (recent net margin around
Equifax demonstrates high profitability and strong cash generation, supported by solid margins and conservative leverage, though it faces concerns around liquidity and earnings momentum.
Equifax is a consumer and commercial credit information and analytics company that combines high profitability (recent net margin around 42.5%) and strong cash generation (operating cash flow TTM $795.8M) with modest balance-sheet leverage (debt/equity approximately 0.26) and historically elevated ROE.
The company’s core profitability and earnings quality are clear: trailing gross and operating margins have been very strong (most recent reported gross ~69.5% and operating ~54.0%), average net margin is roughly 42.5%, and trailing twelve-month operating cash flow of \$795.8M exceeds reported net income of \$546.3M (OCF/NI ≈ 1.61), supporting consistently positive free cash flow characteristics (see Profit Margin Trends and Earnings Quality Analysis).
Equifax has also shown durable shareholder returns with a five‑year EPS CAGR near 16.3% and a trailing ROE around 18.9% (see EPS Diluted & Revenue per Share and Return on Equity (ROE)).
Material areas of concern include short‑term liquidity and signs of decelerating earnings momentum. The current ratio is weak at about 0.65, indicating potential liquidity tightness if short‑term obligations rise, and reported ROE growth is negative (≈ -11.4%), pointing to compressing returns compared to prior periods (see Strategic Capital Allocation and Return on Equity (ROE)).
EPS growth has cooled recently, with one‑year diluted EPS growth slowing to roughly 2.8% in the latest quarter despite multi‑year gains, and some revenue and net income series show quarter‑to‑quarter volatility (most recent revenue $1.64B with net income $101.1M) (see Revenue & Net Income and Revenue & EPS Growth).
The foundation of business quality and long-term value creation
Revenue for EQUIFAX INC shows higher recent quarterly readings compared with most of the 2014–2017 data series. The dataset includes several sub-$1B quarters in 2014–2016 (e.g., $728.3M on 2016-03-31, $811.3M on 2016-06-30, $832.2M on 2017-03-31, $856.7M on 2017-06-30) and earlier mid‑hundreds figures, while the most recent recorded revenue rises to $1.64B. The series also contains notable outliers, including negative reported revenues of
Net income has fluctuated across quarters. Recent net income observations show $158.5M followed by a more recent $101.1M, with several prior quarters in the $100M–$260M range (for example, $153.3M on 2017-03-31, $129.3M on 2016-12-31, $200.2M on 2015-12-31, $261.3M on 2013-12-31). The most recent quarterly revenue was $1.64B, and the most recent quarterly net income was $101.1M.
Why Growth Matters
Consistent revenue and earnings growth are the lifeblood of successful long-term investments. Companies that can grow their top line (revenue) and bottom line (net income) over many years demonstrate they have products or services customers value and are willing to pay for repeatedly.
Revenue Growth shows whether the company is expanding its market reach, gaining market share, or successfully launching new products.Net Income Growth demonstrates the company can convert that revenue into actual profits while managing costs effectively.
Look for steady, sustainable growth rather than erratic spikes. The best businesses compound earnings year after year, creating tremendous value for shareholders over time. Companies that can grow earnings faster than revenue are improving their profitability—a sign of operational excellence and competitive strength.
Year-over-year growth rates for revenue and earnings per share
Reading the Growth Rate Chart
This chart converts the absolute per-share figures into year-over-year percentage changes, making it easy to see whether growth is accelerating, decelerating, or reverting to trend — regardless of the company's absolute size.
Revenue per Share Growth (1-year, split-adjusted) measures how quickly the top line is expanding on a per-share basis. Sustained positive growth signals that the company continues to win customers and grow its addressable market.EPS Diluted Growth (1-year, split-adjusted) measures how quickly earnings are compounding for each shareholder. When EPS growth consistently outpaces revenue growth, operating leverage and margin expansion are at work.
Look for consistency, not just magnitude. A company that reliably grows EPS 10–15% per year is far more valuable than one that alternates between 50% spikes and deep contractions. Negative EPS growth during a period of positive revenue growth is a red flag — costs are rising faster than sales. Quarters where both lines converge near zero or go negative deserve close scrutiny.
How revenue converts to net income for the most recent annual period
Period Information
Report Type: Annual (10-K)
Period: Jul 2015 to Jun 2016
Analyzing long-term margin stability and competitive positioning
In the most recent quarters, EQUIFAX INC's net profit margin moved lower, dropping from 98.7% on 2015-12-31 to 45.7% on 2016-03-31 and 42.5% on 2016-06-30, indicating a pronounced downward shift across the latest three reported quarters. That recent net margin level (42.5% as of 2016-06-30) remains higher than the net margins reported in 2013–2014 (15.3% on 2013-12-31 and 12.5% on 2014-06-30) but markedly below the 2015 peak.
Gross and operating margins are reported most recently in mid-2014 and show relatively high, stable levels at that time: gross margin was 71.2% on 2014-06-30 and 69.5% on 2014-09-30, while operating margin was 53.2% on 2014-06-30 and 54.0% on 2014-09-30, up from 34.8% operating margin on 2013-12-31. The series also contains extreme outliers in 2010–2011 (very large percentages above 200% in several quarters).
Understanding Profit Margins
Between Jul 2015 and Jun 2016, Equifax Inc converts every dollar of revenue through the following stages:
Sustainable competitive advantages reveal themselves through consistently superior profit margins over extended periods. Companies with durable economic moats maintain pricing power and operational efficiency that competitors struggle to match.
A sign of durable competitive advantage is earning sustained higher margins than competitors.Look for margins that remain stable or improve over time, especially during economic downturns. Declining margins may signal increasing competition, pricing pressure, or deteriorating business fundamentals.
Comparing reported earnings to actual cash generation
EQUIFAX INC's trailing twelve-month net income shows an overall upward trend from the 2010 level of $266.7M to recent quarters, but with some volatility. Net income rose through 2013–2016 (peaking at $566.0M in 2016-09-30), dipped to $495.1M by 2016-12-31, and then increased to $546.3M by 2017-03-31. Operating cash flow TTM has risen more steadily over the period, climbing from $352.6M in 2010 to $795.8M by 2016-12-31.
Across the comparable periods shown, operating cash flow has generally exceeded reported net income, and the most recent available operating cash flow observation (2016-12-31) stands well above the contemporaneous net income figure. The most recent Net Income (TTM) was $546.3M. The most recent Operating Cash Flow (TTM) was $795.8M.
The Earnings vs. Cash Flow Gap
Reported earnings (Net Income) doesn't always reflect actual cash generation. Companies use accrual accounting, which recognizes revenue when earned and expenses when incurred—not when cash actually changes hands. This creates timing differences and opportunities for accounting discretion that can mask underlying business health.
Net Income (the "earnings" number) can be influenced by non-cash items like depreciation, stock-based compensation, and changes in accounting estimates.Operating Cash Flow, however, shows the actual cash the business generates from its core operations—a harder number to manipulate.
What to Look For
Key Insight: Companies with durable competitive advantages typically show operating cash flow that meets or exceeds net income over time, demonstrating they convert accounting profits into actual cash that can be returned to shareholders or reinvested in the business.
Measuring management's efficiency at generating profits from shareholder capital
EQUIFAX INC's trailing twelve-month Return on Equity has remained in the mid-to-high teens and low 20s across the reported quarters. After rising from 15.8% at 2010-12-31 and a trough of 13.7% at 2011-12-31, ROE climbed into the high teens by 2013–2014 and peaked at 21.7% on 2016-06-30. From that peak it trended lower through late 2016, falling to 18.6% at 2016-12-31 and then edged slightly higher to 18.9% in the latest quarter.
Earlier quarterly values show a recovery from 15.3% at 2013-12-31 through a series of readings around 17–21%, with the most recent observations clustered just under 19%. The most recent quarterly ROE was 18.9% (period ending 2017-03-31).
The Gold Standard of Profitability
Return on Equity (ROE) is a powerful measure of how effectively a company's management is using the money shareholders have invested. Calculated by dividing Net Income by Shareholders' Equity, it reveals how much profit is generated for every dollar of equity capital.
A consistently high ROE (typically above 15-20%) is often the signature of a "quality" business with a durable competitive advantage. It indicates that the company can generate high returns on its own capital, which it can then reinvest at these high rates to compound value over time.
What to Look For:
How the company generates and deploys its cash
EQUIFAX INC’s trailing-twelve-month operating cash flow has shown a consistent upward trend over the period shown, rising from $352.6M in 2010 to $795.8M by the 2016-12-31 period. The most pronounced increases occur between 2013–2016, with operating cash flow moving from $566.3M (2013) to $616.2M (2014), then to $742.1M (2015) and $795.8M (2016), indicating steadily stronger cash generation from operations in the most recent years.
Investing cash flow has been negative throughout, peaking in absolute outflow at -$429.3M in 2014 before moderating to -$147.8M in the 2015-12-31 TTM figure. Financing cash flow is also consistently negative, with larger net outflows in recent periods—notably -$612.0M in the 2015-12-31 TTM versus smaller outflows in earlier years (for example, -$333.1M in 2013 and -$195.9M in 2011). The latest observed values were: Operating Cash Flow (TTM) $795.8M; Investing Cash Flow (TTM) -$147.8M; Financing Cash Flow (TTM) -$612.0M.
Understanding Company Strategy
Capital allocation refers to how management decides to spend and invest the company's cash. Analyzing the three primary categories of cash flow reveals a company's true operational strategy:
What to look for: Is the company bootstrapping (funding growth solely from operating cash)? Are they borrowing to fund aggressive expansion or dividends? Or are they capital raising by issuing new shares, potentially diluting your ownership? A healthy, mature company typically generates strong operating cash, moderately invests in growth, and returns the surplus to shareholders through financing activities.
Net assets attributable to each share — the accounting floor of intrinsic value
Why Book Value per Share Matters
Book value per share is the net worth of the company — total assets minus total liabilities — divided by shares outstanding (split-adjusted). It represents the theoretical liquidation value per share if every asset were sold and every liability repaid at balance-sheet carrying values. It is the accounting foundation upon which much of equity valuation is built.
A steadily rising book value per share is one of the most reliable signals of compounding wealth creation. It means the company is retaining earnings and building net worth faster than it is returning capital or eroding it. Warren Buffett famously tracked Berkshire Hathaway's book value per share for decades as his primary measure of intrinsic value growth.
Context is essential. Asset-heavy businesses (banks, manufacturers, utilities) should be judged by book value more directly than asset-light businesses (software, consumer brands), where intangible assets like intellectual property and customer loyalty may far exceed their balance-sheet carrying values. A company trading at a large premium to book value is not necessarily overvalued — it may simply possess competitive advantages that accounting rules do not capture. Conversely, a declining book value per share — especially over multiple years — is a serious warning sign of capital destruction.
How much of the company is financed by debt versus shareholders' equity
Reading the Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio compares total financial debt to shareholders' equity. A ratio of 1.0 means the company has borrowed one dollar for every dollar of equity; a ratio of 2.0 means it has borrowed twice as much as it owns. Financial leverage amplifies both returns and risk: in good times, debt turbocharges equity returns; in bad times, it accelerates losses and can threaten solvency.
Trends matter more than a single number. A rising D/E ratio can mean the company is taking on debt to fund growth — potentially value-creating if returns exceed the cost of capital. But it can also mean equity is being eroded through losses or that the business is borrowing simply to sustain operations. A falling D/E ratio generally reflects strengthening financial health: earnings are being retained, debt maturities are being paid down, or both.
Industry norms vary enormously. Capital-intensive sectors (utilities, real estate, financials) routinely carry high D/E ratios that would be alarming in, say, a technology company. Always compare against sector peers. As a rough rule of thumb, a D/E above 2× in a cyclical business warrants careful scrutiny of interest coverage and refinancing risk.
Short-term liquidity — can the company cover its near-term obligations?
Liquidity: Can the Business Pay Its Bills?
The current ratio is calculated as current assets divided by current liabilities. A ratio of 1.5 means the company has $1.50 of short-term assets — cash, receivables, inventory — for every $1.00 of obligations due within the next twelve months. It is the most direct measure of near-term financial resilience: can the business meet its obligations without needing to raise new capital or sell long-term assets at a discount?
A ratio above 1.0 is generally healthy, meaning current assets exceed current liabilities. A ratio consistently above 2.0 may indicate the company is holding excess cash or inventory that could be deployed more productively. A ratio below 1.0 is a warning sign — the company is relying on future cash generation or external financing to cover its near-term obligations, which is manageable in normal conditions but dangerous during a downturn.
Trends and context matter.A declining current ratio isn't always alarming — highly efficient businesses (e.g., large retailers with reliable daily cash flows) often run leaner balance sheets intentionally. Conversely, a rapidly rising current ratio can signal slowing sales causing inventory to build, or customers taking longer to pay. Always compare the trend against industry peers and cross-reference with the cash flow statement to assess whether the business is genuinely liquid or just holding non-cash current assets.
How much the market is paying for each dollar of company earnings
EQUIFAX INC's trailing twelve‑month P/E has moved higher over the past year, rising from 26.6x at 2016-03-31 to 31.0x at 2017-03-31. After a trough in 2016-03 (26.6x), the ratio increased steadily through the four subsequent quarter-ends: 28.8x (2016-06-30), 29.4x (2016-09-30) and 29.7x (2016-12-31), reaching 31.0x in the most recent quarter.
Looking further back, the P/E reached 32.1x at 2015-12-31 before the decline into early 2016, and earlier sample points show lower levels (for example 19.3x at 2014-03-31 and 16.5x at 2010-12-31). The most recent Price-to-Earnings ratio was 31.0x as of 2017-03-31.
What Is the PE Ratio?
The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics in investing. It divides the current stock price by the company's earnings per share (EPS), revealing how much investors are willing to pay for each dollar of earnings. A high PE can signal that the market expects strong future growth, while a low PE may suggest undervaluation—or reflect genuine concerns about the company's prospects.
Context matters:PE ratios vary significantly across industries. High-growth technology companies routinely trade at PE ratios above 30x or 40x, while mature, low-growth sectors like utilities or financials often trade closer to 10–15x. Always compare a company's PE to its own history and its industry peers, not just an absolute number.
What to Look For:
Key Insight:The PE ratio is a snapshot of market sentiment and expectations. Tracking it over time alongside earnings trends reveals whether the market's valuation has expanded or contracted—and whether that change is justified by fundamentals.