Gen Digital, a Software company, moved 0.65 during today's afternoon session. The company's business may appear to be profitable at first glance, since its most recent operating margins stand at 37.0%. 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 Gen Digital's operating profits and cash flows side-by-side to see this process firsthand.
|Date Reported||Total Revenue ($ MM)||Operating Expenses ($ MM)||Operating Margins (%)||YoY Growth (%)|
|Date Reported||Cash Flow from Operations ($ MM)||Capital expenditures ($ MM)||Free Cash Flow ($ MM)||YoY Growth (%)|
Gen Digital'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 Gen Digital, revenues and operating expenses exhibit growth rates of -11.8% and -18.5% respectively. Looking to the cash flow statement, we see that capital expenditures are growing at a -50.1% rate and cash flow from operations are growing at 20.8%.