Cash Flow Trends and their Fundamental Drivers: A Study of the S&P 500 Non-Financials
Mulford, Charles W.
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This report examines cash flow trends for the S&P 500 non-financials and the drivers behind those trends. Included are data on selected cash flow measures and their drivers, insights to the cash cycle and recent earnings quality indicator trends. Among the findings noted for the four-quarters ended June 30, 2006 relative to March 31, 2006: • Core operating cash flow and operating cash flow continued to increase, driven by revenue increases and an improvement in the operating cushion %. The cash cycle, however, lengthened slightly, in-line with seasonal trends. • Free cash flow declined, even as operating cash flow increased, due to an increase in capital spending. • The Earnings Quality Indicator declined due to an increase in earnings at a rate that was faster than the observed increase in operating cash flow. Year-end data, calculated to exclude seasonal factors, should be reviewed carefully for definitive trends. Data for this research was provided by Cash Flow Analytics, LLC. Charles Mulford is a principal in Cash Flow Analytics, LLC.