Question

Year Ended December 31 2015 (in millions) 2017 2016 2014 2013 Net cash provided by operating activities Purchases of property and equipment Property and equipment acquired under capital leases Free cash flow S 24,216 S 16,108 S 10,320 S 7,326 S 4,831 (6,733) (4,491) (2,523) (1,831) (1,362) $ 17.483 $11.617 $ 7,797 S 5,495 $ 3.458

Required: Compare the cash flow from 2015-2017.

What kind of trends can be concluded from the Operating Activities difference?

Has there been a significant change in free cash flow?

Answer 1

An analysis of the 2015-2017 data for cash flow from operations, indicated that there has been an increasing trend in operating cash flows. The cash flow has increased by $13896(24216-10320). This signifies efficient use of funds for operating activities and optimum working capital management.

As seen in the data given, there had been a significant increase in free cash flow from 2015-2017 by $9686, which is more than even the free cash flow for 2015. An increasing trend in free cash flow signifies that there is more fund available for the owners (equity & preference shareholders) and lenders to take. However it may be noted that these cash flows ignore non cash items. It would be wise to have an eye on non cash items before completely concluding on the financial health of the company. The expenditure on better and efficient property and equipment may also have contributed to effective use of funds. Increasing free cash flow also indicates a better collection of accounts receivable, optimum inventory management and better accounts payable repayment terms.

A company with such free cash flows is definitely a sound proposition for the investors seeking to invest and they are bound to receive dividends if the company continues this increasing trend in free cash flows. Judging by the trend the company has high chances to keep this increasing trend going.