Cash Flow Trends and Their Fundamental Drivers: A Continuing Look The S&P 500 Non-financials (Qtr 3, 2008)
Mulford, Charles W.
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This research report is one of a series that looks at the cash flow performance of Corporate America. Our primary focus is on free cash margin, or free cash flow measured as a percent of revenue. In the current study we look at the non-financials of the S&P 500. During the twelve months ended September 2008, free cash margin for the S&P 500 nonfinancials declined to 6.70% from 7.13% for the twelve months ended September 2007. Interestingly, operating cash margin improved slightly during the same period, helped by improvements in operating cushion and the operating cycle. It appears that increased capital spending pushed net cash margin lower even as operating cash margin improved. As a point of reference, free cash margin troughed at 4.36% in the 2001 recession. Thus, by all indications, we can expect a significant decline in free cash margin from current levels. While we do not know how far free cash margin might decline, at the present, with a median $666.7 million on hand, these firms had ample cash and short-term investments to help them weather the financial storm.