Hill-Rom Holdings Delivers Impressive Earnings Report
In a recent financial report, Hill-Rom Holdings (NYSE: HRC) revealed impressive earnings of $111.9 million over the past 12 months. However, a closer look at the company's cash flow reveals some questionable sources.
The cash flow from operations, a crucial indicator of a company's financial health, saw a boost from stock-based compensation and related tax benefits, accounting for 4.4% of Hill-Rom Holdings's cash flow from operations. This increase, while not uncommon, raises questions when a company hands out a significant amount of equity to employees and later uses cash to buy back those shares.
The chart below flags questionable cash flow sources at Hill-Rom Holdings with a red bar. Other questionable cash flow sources include changes in taxes payable, tax benefits from stock options, and asset sales. It's important to note that only -3.4% of Hill-Rom Holdings's operating cash flow comes from these questionable sources.
Despite these questionable cash flow sources, Hill-Rom Holdings managed to convert 11.2% of its revenue into free cash flow. However, capital expenditures were the biggest drag on Hill-Rom Holdings's free cash flow, consuming 28.6% of cash from operations. This highlights the importance of maintaining cash flows that are real and replicable in upcoming quarters, not offset by continual cash outflows.
It's worth mentioning that decreasing accounts receivable is ordinary in recessionary times. This trend was observed in Hill-Rom Holdings's financials as well, with the company reporting $188.7 million in cash flow over the past 12 months.
The cash flow statement can be manipulated, necessitating a close examination of cash flow from operations. Cash flows based on increasing accounts payable or shortchanging taxes are questionable practices that investors should be wary of.
The Motley Fool has a disclosure policy and no position in any company mentioned in the article at the time of publication. The Motley Fool offers several Foolish newsletter services for free for 30 days.
Seth Jayson had no position in any company mentioned in the article at the time of publication. The Motley Fool has no position in any of the stocks mentioned in the article. Specific data on investment companies deriving a high proportion of their operational cash flow from questionable sources like taxes, asset sales, and liabilities such as depreciation over the past 12 months, including exact ratios, is not readily available in public domain summaries.
In conclusion, while Hill-Rom Holdings's earnings are impressive, a careful examination of its cash flow is necessary to fully understand the company's financial health. Investors should be cautious of questionable cash flow sources and look for signs of sustainability in the company's cash flows.
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