CS Falls -19.7%. Are They a Good Value Now?

Credit Suisse dropped -19.7% during today's aftermarket session, underperforming the S&P 500 by -19.2%. The lackluster performance from the scandal-plagued bank may seem like an opportunity to buy shares at a discount, but it's a good idea to take a closer look at the company's financials first.

At first glance, Credit Suisse is profitable because its operating margins have recently averaged 19.0%. This represents the percentage of profit after all operating costs have been accounted for, and if you're thinking that these profits neatly translate into cash, and therefore, equity growth, you'd be mistaken. This is because profits are not cash.

When a company makes a sale, its accountants record it as revenue -- even if the company hasn't gotten paid yet. Corporate accountants use the accrual method (as opposed to the cash method) to paint a representative picture of how much the company is collecting and spending on average in each reporting period. But the incoming and outgoing cash flows associated with the recorded revenues and expenses may occur before, during, or after the reporting period.

This means that a company can be profitable in a given year, yet post a negative cash flow from operations. Some profitable companies may struggle to reliably convert their profits into the cash needed to run the daily business, to service its debt, and to pay its equity investors. That's why its essential to review the company's cash flows in tandem with its profit margins. Below is an overview of Credit Suisse's recent cash flows:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 36,938,000,000.0 -1,419,000,000.0 35,519,000,000.0 592.02
2020-12-31 -6,031,000,000.0 -1,188,000,000.0 -7,219,000,000.0 61.25
2019-12-31 -17,338,000,000.0 -1,293,000,000.0 -18,631,000,000.0 -258.05
2018-12-31 12,883,000,000.0 -1,095,000,000.0 11,788,000,000.0 n/a

Credit Suisse's cash flows are on average positive, but their high coefficient of variability, which stands at 441.8%, is cause for concern. We also note the average free cash flow growth rate of 131.7%, but this does not adequately compensate for the extreme volatility of these numbers, which clearly show that the bank is navigating troubled waters.

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.