Take Boustead Singapore 1HFY2017 results
NPAT was SGD22M.
Cashflow from operating activities was SGD77M.
Cash increased from SGD259M to SGD297M
Use NPAT rather than profit attributable to equity holder of the company for good reason. What in concern is cash and cash has to be look at in this way.
Wow Boustead Singapore is generating load of cash, 55M more than NPAT, cash generating machine. you might say! True it is generating lot of cashflow but cashflow can’t be look into on a single year basis. Cashflow before changes in working capital basically just above PBT. That say there isn’t lot of one-time non cash item. So basically, the cashflow of the company is just about Net profit. The “pop” is due to changes in working capital which can be easily explain by saying timing differences.
From FY11 to FY16. Boustead Singapore generated SGD375M NPAT and SGD408M Cashflow. Sound just right. Depreciation would explain the reason for the higher cashflow. That SGD55M will be not continue for sure.
What about SGD297 cash? Well SGD134 sit in Boustead Project and the remaining SGD163 sit in companies other than those in Boustead Project. Most are wholly owned subsidiaries. That SGD134 can be say as restricted by Boustead Project and is not available for Boustead Singapore to use it as like ATM. The easiest way to think about it is ask shareholders of Boustead Project, “Are you going to let Boustead Singapore to use your cash?” Some shareholders might just say, “No way. They have no rights and what do I get”
So what is strong cashflow? Cashflow is strong when the company is generating good return. ie good ROE. Nothing more nothing less and of course I am assuming cashflow is almost the same or just above NPAT.
Free cashflow is another thing and for some industries, growth require heavy investment in working capital.
Talk about working capital. Recent times is pretty bad for many companies. More decent company will see increasing cashflow despite reducing revenues. This is just changes in working capital and is not a sign that company is doing well. Of course they are not doing badly as well. As the lousy companies will not see the “pop”.