Hill-Rom Holdings's Earnings Impressively High
In the world of corporate finance, the cash flow statement is a crucial document that provides insights into a company's financial health. However, it's not always immune from manipulation or questionable practices. A recent analysis of Hill-Rom Holdings (NYSE: HRC) sheds light on some areas that investors might want to consider.
According to a report titled 'Why Hill-Rom Holdings's Earnings Are Outstanding' on Fool.com, Hill-Rom Holdings generated $188.7 million in cash over the past 12 months. However, a closer look at the components of cash flow from operations reveals some questionable sources.
The report flags stock-based compensation and related tax benefits as the primary contributors to Hill-Rom Holdings's questionable cash flow, accounting for 4.4% of cash flow from operations. This practice, while common, can be questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.
Capital expenditures were the biggest drag on Hill-Rom Holdings's free cash flow, consuming 28.6% of cash from operations. This is a significant portion, indicating that the company is investing heavily in its future growth.
Despite these questionable cash flows, Hill-Rom Holdings turned 11.2% of its revenue into free cash flow over the past 12 months. This is a respectable figure, but it's important to remember that not all cash flows are created equal.
It's important to take a close look at the components of cash flow from operations to ensure high-quality cash flows. For instance, decreasing accounts receivable is good to see, but it's ordinary in recessionary times. On the other hand, cash flow based on stiffing suppliers or shortchanging taxes will come back to bite investors later.
Most investors do not keep tabs on their companies' cash flow, which can lead to missing potential trouble early. However, keeping track of a company's cash flow can improve the chances of finding underappreciated home-run stocks.
Institutional investors and shareholders who regularly analyze quarterly financials, such as mutual funds, hedge funds, and equity analysts following Hill-Rom Holdings, often examine the company's free cash flow to assess its relationship with net income reported in headlines. While no specific shareholder names are publicly detailed in the search results, this practice underscores the importance of cash flow analysis.
In conclusion, while Hill-Rom Holdings's questionable cash flows amounted to only -3.4% of operating cash flow, it's essential for investors to remain vigilant and scrutinize corporate cash flows carefully. The Motley Fool's disclosure policy can be found here. 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.
The chart below provides a visual representation of questionable cash flow sources for Hill-Rom Holdings, flagged with a red bar.
As always, diligent research is the key to making informed investment decisions.
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