Cash Flow Trends and Their Fundamental Drivers: A Continuing Look Summary Review (Qtr 1, 2009)
Mulford, Charles W.
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In this research report we provide a “flash” measure of free cash margin for all non-financial companies measured through March, 2009. We found that for the twelve months ended March, 2009, free cash margin improved to 4.60%, up from the recession low of 4.12% reached in December 2008, but down slightly from the 4.72% registered during the twelve months ended March, 2008. This is a particularly striking development in that it is the first twelve-month period since December 2007 that we have seen improvement in free cash margin. The implication is that the firms in our sample are in the process of turning the corner in terms of financial performance. It also provides support for the improvement in stock prices we have seen since early March 2009. In the March 2009 reporting period, free cash margin improved even as profitability, as measured by operating cushion, declined. Driving the improvement in free cash margin was a small reduction in capital spending and a more sizable decrease in the cash cycle. Firms are truly becoming “lean and mean” and dealing well with a noted decline in profitability. We look forward to reviewing the data for the June 2009 quarter to see if the improvements noted in March are continuing. Confirmation of the end of the recession on a cash flow basis will require an improving cash margin driven more by improving profitability, as evidenced by improving operating cushion, and less through reductions in capital spending and the cash cycle.