SoftBank Group, a Large-Cap Telecom Services company, moved 1.3 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 11.5%. 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 SoftBank Group's operating profits and cash flows side-by-side to see this process firsthand.
| Date Reported | TotalRevenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-03-31 | 6,221,534,000 | 2,551,722,000 | 11.47 | 7.0 |
| 2021-03-31 | 5,628,167,000 | 2,271,497,000 | 10.72 | 148.16 |
| 2020-03-31 | 6,185,093,000 | 4,076,563,000 | -22.26 | n/a |
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | FreeCashFlow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-03-31 | 2,725,450,000 | -835,073,000 | 1,890,377,000 | 2208.9 |
| 2021-03-31 | 557,250,000 | -646,888,000 | -89,638,000 | 21.83 |
| 2020-03-31 | 1,117,879,000 | -1,232,551,000 | -114,672,000 | n/a |
SoftBank Group's margins have a coefficient of variability of 82547.9% and an average growth rate of 14.9%. Its free cash flow, on the other hand, has a coefficient of variability of 204.7% and an average growth rate of 159.6%.
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 good reason to believe the company is being honestly and effectively run.
