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Fears of Double-Dip Recession May Be Overblown




Free cash margins have been turning around of late according to a new quarterly report on cash-flow trends issued by the Georgia Tech Financial Analysis Lab. This is a healthy sign according to the report, which is based on the financial reports of a sample of 3,000 nonfinancial publicly traded companies in 44 industries over the trailing 12-month period.

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Rather than reflecting concerns about a return to an economic recession, corporations sported a sales surge of 15 percent and a rise in median cash flow of 4 percent between the first and second quarters of this year, according to a new quarterly report on cash-flow trends issued by the Georgia Tech Financial Analysis Lab.

''We're seeing a continuation of investments in inventory and capital assets, an improvement in operating cushion, and generally the first signs of robust revenue growth that we've seen in many quarters,'' said Charles Mulford, a Georgia Tech accounting professor who directs the lab.

During the 2008-2009 recession, corporations slashed their investments in capital expenditures in order to boost their liquidity. That trend was reflected in a sharp rise in free cash margin (free cash flow divided by revenue), a metric employed by Mulford.

For the year ending in June, median free cash margin for the sample decreased to 4.63 percent from the 5.2 percent reported for the March 2011 period, continuing a trend that started with the end of the last recession in late 2009. The metric decreased for the fifth straight 12-month reporting period off of its March 2010 high of 7.18 percent.

While there's much concern today about the risk of a double-dip recession, the second-quarter results suggest that such concerns may be overblown, according to the lab's report.

- Courtesy of CFO


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July 26, 2014, 3:13 pm EST

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