Comparing the Profit Margins and Cash Flows of Commercial Vehicle (CVGI)

Commercial Vehicle, a small-cap Auto Parts 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 2.0%. 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 Commercial Vehicle'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 (%)
2022-12-31 981,553 66,361 2.05 -59.8
2021-12-31 971,578 69,406 5.1 529.63
2020-12-31 717,699 68,228 0.81 -82.04
2019-12-31 901,238 64,501 4.51 n/a
Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) FreeCashFlow ($ k) YoY Growth (%)
2022-12-31 68,947 -19,710 49,237 203.69
2021-12-31 -29,832 -17,653 -47,485 -274.38
2020-12-31 34,372 -7,142 27,230 113.67
2019-12-31 36,746 -24,002 12,744 n/a

Commercial Vehicle's free cash flows have a significantly higher volatility than its margins, with coefficients of variability of 397.1% and 65.0% respectively. Free cash flow is calculated by subtracting capital expenditures from operating cash flow. Operating cash flow is the net cash flowing in from business activities, while capital expenditures are long term investments in the business.

Capital expenditures have an effect on operating margins because they are depreciated as an expense in each accounting period's earning statement. So if cash flows are much more variable than margins, the company is likely using accounting methods that make its margins appear more stable than they might otherwise be. Or the business may be not be predictably converting sales profits into cash.

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.