Capital One Financial, a large-cap Credit Services company, moved -0.6 during today's morning session. The company's business is fundamentally profitable, as its average operating margins stand at 34.3%. 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 Capital One Financial'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 | 32,379,000,000.0 | 16,375,000,000.0 | 49.43 | 156.11 |
| 2020-12-31 | 18,259,000,000.0 | 14,735,000,000.0 | 19.3 | -41.44 |
| 2019-12-31 | 22,357,000,000.0 | 14,988,000,000.0 | 32.96 | -6.79 |
| 2018-12-31 | 22,220,000,000.0 | 14,364,000,000.0 | 35.36 | n/a |
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 12,310,000,000.0 | -698,000,000.0 | 11,612,000,000.0 | -27.38 |
| 2020-12-31 | 16,699,000,000.0 | -710,000,000.0 | 15,989,000,000.0 | 1.5 |
| 2019-12-31 | 16,639,000,000.0 | -887,000,000.0 | 15,752,000,000.0 | 30.14 |
| 2018-12-31 | 12,978,000,000.0 | -874,000,000.0 | 12,104,000,000.0 | n/a |
Capital One Financial's free cash flows are growing at a slower pace than operating margins. Free cash flows are calculated on the basis of operating cash flows (the money coming in from the business) minus capital expenditures (long term investments in the business). Capital expenditures are accounted for on the income statement in the form of depreciation expenses, so they eventually will have an affect on operating margins.
In the case of Capital One Financial, revenues and operating expenses exhibit growth rates of 19.9% and 4.6% respectively. Looking to the cash flow statement, we see that capital expenditures are growing at a -6.7% rate and cash flow from operations are growing at 0.8%.
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