Quick Look at the Cash Flows of Shaw Communications (SJR)

Shaw Communications dropped -2.1% during today's morning session, underperforming the S&P 500 by -1.8%. The lackluster performance from the large-cap Telecom Services company 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, Shaw Communications is profitable because its operating margins have recently averaged 22.5%. 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.

Shaw Communications's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2022-08-31 5,448 1,894 23.99 3.18
2021-08-31 5,509 1,869 23.25 7.09
2020-08-31 5,407 1,860 21.71 3.88
2019-08-31 5,340 1,710 20.9 n/a

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 money the company is collecting and spending on average in each reporting period. So these income and expense numbers for a given period never match the incoming and outgoing cash flows during the same 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 Shaw Communications's recent cash flows:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2022-08-31 1,831 -1,096 735 -18.87
2021-08-31 1,923 -1,017 906 17.82
2020-08-31 1,920 -1,151 769 446.4
2019-08-31 1,568 -1,790 -222 n/a

Shaw Communications's cash flows are on average positive, but their high coefficient of variability, which stands at 94.7%, may be cause for concern more cautious investors. We also note the average free cash flow growth rate of 148.4%.

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.