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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.

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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, 2013

Free Cash Margin Index:
Recession Lows

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


4.56% (December 2013)

Recent High

7.18% (Mar. 2010)

In Q4 2013, median free cash margin decreased to 4.56% for the twelve months ended December 2013, from
4.68% for the twelve months ended September 2013, also down from 4.76% in December 2012. As it has for
much of the time frame studied, except for the 2008 – 2009 recession, free cash margin continues to operate
within a narrow range of between 4.5% and 5.0%.

While we would rather see an improving free cash margin, there are positive developments behind the slight
decrease this quarter. Median revenues increased to $726.07 million, up from $705.28 million for the twelve
months ended September 2013 and down from $788.50 million in the period ending December 2012. The
quarterly rise of 2.95% offers a positive signal in the U.S. economy, against its year-over-year decline of 7.92%.
Along with rising revenues, operating profitability improved, driven higher by improving gross margin and level
SG&A spending. The median cash cycle improved considerably as receivables, inventory and payables days all
contributed. The fourth quarter data promotes an improving economy, but does not yet imply a strong economy.

Looking at individual industries during the December 2013 reporting period, free cash margin was stable in
nineteen industries, increased in eleven and declined in fourteen. Compared to Q3 2013, we are seeing more
individual industries with stable free cash margin. Included in this report is a closer look at two separate
industries: Consumer Goods with increasing free cash margin and Retail with decreasing free cash margin.

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

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.

DownloadLennar: 02.29.12

DownloadDR Horton: 02.29.12

DownloadDeckers: 04.03.12

DownloadSelected Companies: 05.01.12

DownloadIndustry Review: 01.08.13

DownloadGreat Lakes Dredge: 04.07.13


Excel Spreadsheets of Cash Flow Data and Graphs by Industry

Quarter 4, 2013

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