General Electric Company (NYSE: GE) has forgone its systemically important financial institution (SIFI) designation and continues to lose in oil and gas. A quick look at Q1 and Q2 '16 earnings reports shows favorable beat in earnings and a recent beat on revenue growth. While the income statement appears rosy, it is the cash flow that is of concern.
For the past four years of annual reports, General Electric had positive Operating Cash Flow (OCF). In 2015 they spent 37% of the OCF on Capital Expenditures (CapEx). In stark contrast, the 2H of '16 shows a negative OCF of -$2.9b. Perhaps there is more pullback yet to come for PPS after Q3 earnings release. General Electric will need to turn this corner of six month cash burn.
Here is a swift look at General Electrics's Free Cash Flow (FCF) Yield for Q2 2016:
That is to say, General Electric's FCF is at a loss requiring them to dip into cash reserves. Free Cash Flow is a -$5.9b resulting in negative yield percentages of MarketCap and EV. At last count of cash and short term investments they had $52b, which was $23b less than the previous quarter. It is this negative trend that could pull the PPS down even further. Currently, P/E is 28.24; Div Yield 3.08. This is yet to be a fundamental value investment.
Free Cash Flow can be tabulated by taking the value of the company's operating cash flow and subtracting from it the value of capital expenses. The yield is then formulated by dividing the result by either the market capital or enterprise value.
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