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The Georgia Tech Financial Analysis Lab conducts unbiased research on issues of financial reporting and analysis. Unbiased information is vital to effective investment decision-making. Accordingly, we think that independent research organizations, such as our own, have an important role to play in providing information to market participants.

Because our lab is housed within a university, all of our research reports have an educational quality, as they are designed to impart knowledge and understanding to those who read them. Our focus is on issues that we believe will be of interest to a large segment of stock market participants. Depending on the issue, we may focus our attention on individual companies, groups of companies, or on large segments of the market at large.

A recurring theme in our work is the identification of reporting practices that give investors a misleading signal, whether positive or negative, of corporate earning power. We define earning power as the ability to generate a sustainable stream of earnings that is backed by cash flow. Accordingly, our research may look into reporting practices that affect either earnings or cash flow, or both. At times our research may look at stock prices generally, though from a fundamental and not technical point of view.


Quarter 4, 2014
Free Cash Margin Index:
Recession Lows

2.43%, 3.96% (Mar. 2001, Dec. 2008)


4.27% (Dec. 2014)

Recent High

7.18% (Mar. 2010)

April 2015

Median free cash margin increased to 4.27% for the twelve months ended December 2014, from 4.01% for the twelve months ended September 2014, but down from 4.56% in December 2013. The metric has now increased into the middle range of its historical stability between 4.00% and 5.00%. A decrease in the overall cash cycle (due to a decrease in accounts receivables days) and an increase in gross margin percent were the primary drivers of the increase.

Continued topline growth suggests an improving economy. Median revenues within our sample increased to $798.78 million, up from $774.50 million for the twelve months ended September 2014. Median revenues are now at an all-time high, comfortably surpassing their peak of $788.50 million reached during the period ending December 2012.

The rise in free cash margin would be more substantial but for the decline in accounts payable, the primary drag on free cash margin compared with recent periods. Inventory is up slightly at 22.71 revenue days from 22.52 revenue days in September 2014. Inventory investment coupled with increased gross margin percentage signal an improving economy. Capital expenditures to revenue increased to 3.51% from the previous quarter at 3.47%. Capital expenditures by this measure is at 95.90% of its five year high of 3.66%. Overall, accounting data for the twelve months ending with the fourth quarter of 2014 imply a strong and growing economy.

Looking at individual industries for the reporting period ending December 2014, free cash margin was stable in sixteen industries, higher in thirteen, and lower in fifteen.

Data for this research were provided by Cash Flow Analytics, LLC.,
Charles Mulford is a principal in Cash Flow Analytics, LLC.

Download this Report

View Past Reports


Earnings Quality: Reports on Individual Companies and Industries

In these reports we examine one or more dimensions of earnings quality: the cash flow support of earnings, the sustainability of earnings, or the quality of the balance sheet.


EQI, The Cash Flow Support of Earnings: Industry Review, 01.08.13


EQI, the Cash Flow Support of Earnings:  Homebuilding Industry, 04.23.15


The Sustainability of Earnings: Selected Companies, 12.09.14


EQI, The Cash Flow Support of Earnings: Industry Review, 03.02.15


Excel Spreadsheets of Cash Flow Data and Graphs by Industry

Quarter 4, 2014

0. All Industries (non-financials)
1. Agriculture
2. Food Products
3. Candy & Soda
4. Beer & Liquor
5. Tobacco Products
6. Recreation
7. Entertainment
8. Printing & Publishing
9. Consumer Goods
10. Apparel
11. Healthcare
12. Medical Equipment
13. Pharmaceutical Products
14. Chemicals
15. Rubber & Plastic Products
16. Textiles
17. Construction Materials
18. Construction
19. Steel Works
20. Fabricated Products
21. Machinery
22. Electrical Equipment

23. Automobiles & Trucks
24. Aircraft
25. Shipbuilding & Railroad Equipment
26. Defense
27. Precious Metals
28. Non-metallic & Industrial Metal Mining
29. Coal
30. Petroleum & Natural Gas
31. Utilities
32. Communication
33. Personal Services
34. Business Services
35. Computer Hardware
36. Computer Software
37. Electronic Equipment
38. Measuring & Control Equipment
39. Business Supplies
40. Shipping Containers
41. Transportation
42. Wholesale
43. Retail
44. Restaurants