Does Ambev Generate Enough Cash?

Ambev, a large-cap Alcoholic Beverages company, moved 0.8 during today's afternoon session. The company's business is fundamentally profitable, as its average operating margins stand at 29.3%. But a profitable business does not always translate into value creation for the company's equity investors.

Investors should review the company's profitability, and also its ability to convert these profits into hard cash. Some profitable companies struggle in this respect. For example, an unexpected increase in capital expenditures, or an inability to collect payments from customers can quickly empty a company's coffers despite healthy profits on paper. Let's compare Ambev's operating profits and cash flows side-by-side to see this process firsthand.

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 72,854,344,000.0 55,562,989,000.0 23.73 -14.92
2020-12-31 58,378,995,000.0 42,099,238,000.0 27.89 -11.21
2019-12-31 52,005,120,000.0 35,668,978,000.0 31.41 -8.08
2018-12-31 50,231,336,000.0 33,067,272,000.0 34.17 n/a
Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 22,900,951,000.0 -7,677,113,000.0 15,223,838,000.0 7.49
2020-12-31 18,855,780,000.0 -4,692,695,000.0 14,163,085,000.0 6.39
2019-12-31 18,381,259,000.0 -5,069,405,000.0 13,311,854,000.0 -9.9
2018-12-31 18,346,075,000.0 -3,570,957,000.0 14,775,118,000.0 n/a

Ambev's margins have a coefficient of variability of 15.4% and an average growth rate of -11.4%. Its free cash flow, on the other hand, has a coefficient of variability of 5.8% and an average growth rate of 1.3%.

Capital expenditures are indirectly taken into account in the income statement in the form of depreciation, which spreads out these one-time expendiures over several accounting periods. Accountants can control how much capital expenditures influence margins by simply changing the number of periods each capital expense is depreciated in. Such manipulation is visible when cash flow and margin trends are inconsistent.

When a company's margins and cash flows tell a similar story, you have food reason to believe the company being honestly and effectively run. To further sharpen your investing senses, make sure to subscribe to our free weekly newsletter!

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.