Cash Flow Stats Suggest Coming Economic Slowdown


A report on cash flow trends from the Georgia Tech Financial Analysis Lab indicated a decline in company revenue growth and free cash. Taken together, the data could be the earliest signals of an economic slowdown in the U.S.

The lab, led by NACM Graduate School of Credit and Financial Management (GSCFM) Instructor and Georgia Tech Accounting Professor Charles Mulford, examines cash flow trends and the underlying drivers causing changes in those trends. The resulting quarterly report, drawn from a total sample of 2,904 companies with a market capitalization of at least $50 million, found that, in the 12 months ending in March, the free cash margin index declined to 4.52% from 4.76% for the 12 months ending the quarter prior. For comparison's sake, the index hit a low of 3.96% in December 2008, during the throes of the recession. Its recent high water mark was 7.18% in March 2010.

Perhaps more alarming than the drop in the free cash margin are declines in revenue growth, the first in seven quarters and the declining profitability that seems to be driving the drop in the free cash margin. This quarter's report also hosted the first decline in capital spending after 11 consecutive quarters of rising capital expenditures.  

- Jacob Barron, CICP, NACM staff writer
See the extended version of this story in this week's edition of NACM eNews, available late Thursday afternoon (EST) at www.nacm.org.

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