Cash Flow Trends and Their Fundamental Drivers: A Continuing Look Comprehensive Industry Review (Qtr 3, 2008)

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Mulford, Charles W.
Surani, Sohel
Blake, Jason
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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. We also look at the drivers or components of free cash margin in an effort to determine factors behind observed changes. In the current study we conduct a comprehensive review of 20 four-digit GICS non-financial industries and their 61 six-digit GICS sub-industries for a series of rolling twelve-month periods from the first quarter of 2000 through the third quarter of 2008. After bottoming below 2.5% during the 2001 recession, free cash margin has improved markedly and has remained relatively stable above 4.5% since 2002, declining to just below 4.5% for the twelve months ended September 2008. Our expectation is that during the current recession, free cash margin will likely decline to levels that are at or below those found in the 2001 recession. The implication is that over the next year or so, median free cash flow could fall by 50% or more. In this report we provide a summary of our results and identify several representative companies. Please refer to the various industry reports that accompany this introduction for industry details.
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