Free Cash Margins Decline Again, and That’s Good

The folks at the Financial Analysis Lab at Georgia Tech are out with their latest analysis of corporate cash flow. The finding? For the sixth reporting period in a row, corporate cash flow dropped. While that sounds ominous, the drop actually signals a recovering U.S. economy, they say.

The analysis examined about 2,900 non-financial companies with current market caps of at least $50 million. For the twelve-month period ending September 2011, the free cash margin stood at 4.41 percent, down from 4.63 percent for the year ending June 2011. Its most recent high was in March 2010, when free cash margins hit 7.18 percent. (Free cash margin, according to the report, indicates the percent of revenue left for shareholders in the form of free and discretionary cash flow, and tells how many cents shareholders can take home without reducing the company’s ability to generate more.) (more…)