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Fewer than half of all U.S. industries showing improved cash flow: study Print E-mail
Friday, 13 November 2009

By Ronald Fink

Only a minority of industries are seeing much improvement in free cash flow, according to a research study released on Friday. The authors say the findings support their view that any recovery by the economy will be fragile.

The study by the financial analysis lab at the Georgia Institute of Technology found that free cash had improved moderately or substantially at only eight industries out of 20 for the quarter ended June 30, compared to a year earlier. Margins were stable in 10 industries and declining in the remaining two.

The findings follow an earlier study by the lab of second quarter cash flow trends for the overall U.S. economy, which found that the increased aggregate free cash for the 3,515 companies studied was not the result of improved operating margins. Rather, it came from cuts in capital spending and the cash cycle, or the length of time corporate funds are tied up in working capital. The authors pointed out that such a trend was not sustainable and that the economy’s recovery could be short-lived as a result.

The latest findings show that the improvements in cash flow are limited to certain industries. “The stability seen in the sample-wide data is not apparent for all industries studied,” wrote the authors, Charles Mulford, an accounting professor at Georgia Tech who directs the lab and an adviser to CFOZone, and research assistant Brandon Miller.

The eight industries that showed moderate or significant improvement were materials, capital goods, commercial and professional services, capital goods, consumer services, retailing, food and staples retailing, and food, beverage and tobacco.

The 10 industries that had stable free cash flow were energy, automobiles and components, consumer durables and apparel, media, household and personal products, health-care equipment and services, software and services, technology hardware and equipment, and semiconductors and semiconductor equipment. Pharmaceuticals, biotechnology and life sciences along with utilities showed declines in free cash flow.


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