Quick Focus on Cash Flows — Dominion Energy (D)

Dominion Energy, a large-cap Electric Utilities company, moved 0.1 during today's morning session. The company's business may appear to be profitable at first glance, since its most recent operating margins stand at 31.7%. But there is more to the story.

Investors should review the company's profitability over several years, 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 Dominion Energy'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 13,964,000,000 9,537,000,000 31.7 24.8
2020-12-31 14,172,000,000 10,573,000,000 25.4 9.01
2019-12-31 14,401,000,000 11,045,000,000 23.3 -16.58
2018-12-31 11,199,000,000 8,071,000,000 27.93 n/a
Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 4,037,000,000 -6,061,000,000 -2,024,000,000 -83.33
2020-12-31 5,227,000,000 -6,331,000,000 -1,104,000,000 -843.59
2019-12-31 5,204,000,000 -5,321,000,000 -117,000,000 -131.79
2018-12-31 4,773,000,000 -4,405,000,000 368,000,000 n/a

Dominion Energy's margins may be growing at an average rate of 5.7%, but its free cash flows are shrinking at an average rate of -352.9%. Operating cash flow is the money coming in from the business, and free cash flow results from the subtraction of capital expenditures, which is just another way of saying "long term investments in the business." These investments are accounted for in the income statement as depreciation expenses.

Understanding the relationship between income and cash flows will help you choose stocks of truly valuable businesses — not just the ones with creative accountants.

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.