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Financial Analysis Lab

Georgia Tech's Financial Analysis Lab conducts unbiased stock market research. 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.

Latest Report
January 2014

Cash Flow Trends and Their Fundamental Drivers:Comprehensive Review (Quarter 3, 2013)

FREE CASH MARGIN INDEX:

2.43%, 3.96% 4.68% 7.18%
Recession Lows Current Recent High
(Mar. 2001, Dec. 2008) (Sept. 2013) (Mar. 2010)

In Q3 2013, median free cash margin increased, reaching 4.68% for the twelve months ended September 2013, up from 4.63% for the twelve months ended June 2013, yet down from 4.72% in June 2012. A decrease in the overall cash cycle and capital spending were the primary drivers of the increase, outweighing the drop in operating profitability. The cash cycle reduction was driven by a decrease in inventory days and an increase in payables days. Free cash margin continues to operate within a narrow range between 4.5% and 5%.

As reported last period, there are concerns behind the increase in free cash margin.  Median revenues decreased to $705.28 million, down from $736.85 million for the twelve months ended June 2013 and $776.47 million in the period ending September 2012. The quarterly decline of 4.28% and year-over-year decline of 9.17% signal a slow-down in the U.S. economy.  The decline in median revenues accompanied by an increase in free cash margin, driven primarily by reductions in capital spending and the cash cycle, are similar to developments observed during the recession. The third quarter data do not imply a strong and strengthening economy. 

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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. 

 

Excel spreadsheets of cash flow data and graphs by industry.
Quarter 3 - 2013
 
0 All Industries (non-financials)
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22 44 Restaurants
 
Financial Reporting & Analysis Lab
 

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FREE CASH PROFILE: THE WINNERS AND LOSERS AS REVENUES GROW


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