What's Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio by John Del Vecchio & Tom Jacobs

Author:John Del Vecchio & Tom Jacobs
Language: eng
Format: mobi
Publisher: McGraw-Hill Education
Published: 2012-09-18T18:30:00+00:00

Operating Cash Flow Margin

The operating cash flow margin helps determine how much of the revenue is translating into cash flow and is crucial, because it reflects business strength better than earnings. Measure it on a rolling 12-month basis to smooth it out. If it starts to drop off, find out whether it’s short-term or persistent. Then you can see if there’s trouble and know to avoid it.

The rarer and happier situation occurs with a company whose OCF margin is rising without any of the short-term ways to boost it. If the investor can buy that stock at an attractive valuation, it’s an excellent chance to profit. Table 5.9 shows that Apple, in the three years to the quarter ending September 24, 2011, showed a steady increase in operating cash flow margin.

Table 5.9 Apple’s Tasty Operating Cash Flow Margin Core: December Quarter 2008–September quarter 2011*

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